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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NO.: 0-25053
THEGLOBE.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 14-1781422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
31 WEST 21ST STREET
NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
(212) 886-0800
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.001 per share
Preferred Stock Purchase Rights
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K [X].
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on March 1, 1999: $264,943,350.*
Common Stock outstanding at March 1, 1999: 10,661,327 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
The information required by Part III of this report, to the extent not
set forth herein, is incorporated by reference from the registrant's
definitive proxy statement relating to the annual meeting of stockholders
to be held in 1999, which definitive proxy statement shall be filed with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year to which this Report relates.
* Includes voting stock held by third parties which may be deemed to be
beneficially owned by affiliates, but for which such affiliates have
disclaimed beneficial ownership.
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THEGLOBE.COM, INC.
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business........................................................1
Item 2. Properties.....................................................14
Item 3. Legal Proceedings..............................................15
Item 4. Submission of Matters to a Vote of Security Holders............15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................16
Item 6. Selected Financial Data........................................17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....40
Item 8. Financial Statements and Supplementary Data....................40
Item 9. Changes in and Disagreements with Accountants and
Accounting and Financial Disclosure............................57
PART III
Item 10. Directors and Executive Officers of the Registrant.............58
Item 11. Executive Compensation.........................................58
Item 12. Security Ownership of Certain Beneficial Owners and
Management.....................................................58
Item 13. Certain Relationships and Related Transactions.................58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.......................................................59
SIGNATURES...............................................................61
PART I
ITEM 1. BUSINESS
OVERVIEW
theglobe.com is one of the world's leading online communities with
nearly 2.5 million members in the United States and abroad. In December
1998, over 9.3 million unique users visited our web site. Our web site is a
destination on the Internet where users are able to personalize their
online experience by publishing their own content and interacting with
others having similar interests. We facilitate this interaction by
providing various free services, including home page building, discussion
forums, chat rooms, e-mail and electronic commerce. Additionally, we
provide our users with news, business information, real time stock quotes,
weather, movie and music reviews, multi-player gaming and personals. By
satisfying our users' personal and practical needs, we seek to become our
users' online home.
We generate revenues primarily by selling advertisements, sponsorship
placements within our site, development fees and, to a lesser extent, from
electronic commerce revenues and the sale of membership subscriptions for
enhanced services. In the last three months of 1998, we had approximately
147 advertisers, including Coca Cola, Dunkin' Donuts, J. Crew, Polygram,
Sony, 3Com and Visa. In February 1999, we acquired Azazz.com, an online
retail store which sells a variety of name brand products directly to
consumers. We began integrating Azazz into our site in February 1999 and
expect to begin to generate additional revenues from electronic commerce in
the second quarter of 1999.
Since our founding, we have experienced strong growth. Over 9.3
million unique users visited our site in December 1998, according to ABC
Interactive. Unique users are the actual number of users who access our
site. Members are users who register with us and provide personal
information to us. Approximately 40% of our monthly traffic originates from
abroad, reflecting our site's international appeal.
THEGLOBE.COM
Todd V. Krizelman and Stephan J. Paternot began our company to take
advantage of the demand for online destinations that allow users to develop
their own identities and establish relationships with users with similar
interests. We organized our community in a hierarchy modeled after the real
world. Our site has ten "Themes of Interest":
o Arts o News
o Business o Romance
o Entertainment o Sports
o Life o Technology
o Metro o Travel
Themes of Interest are subdivided into 24 "Cities," which are further
divided into 75 "Districts." Within each District, members have the ability
to create or join "Interest Groups," our smallest form of community. As of
December 31, 1998, there were over 325 Interest Groups. Any member may
propose an Interest Group, but an Interest Group will not be activated on
the site until it receives sufficient votes from other members. We do not
limit the number of communities which our members can join and our members
are free to leave an Interest Group at any time. Because of this, the
communities are dynamic and evolve as member interests change. Members of a
community elect community leaders to manage communities, highlight member
content, communicate directly to constituents and organize events.
Within Interest Groups, our members can access a collection of
services to generate content, including chat, open forums and e-mail.
Member-created content within Interest Groups satisfies users' desires for
topic specific information, conversation and debate. Members vote and
generate content for communities. We believe our member-created content
helps us attract a large audience of users. As these users become familiar
with our site, we believe that we have a greater ability to convert them
into members.
The unique community focus of our site offers us several advantages
that include:
o Member Loyalty. Because we provide a homepage for our members,
members develop loyalty to our site and to the communities in
which they participate. We believe that this translates into more
frequent usage by members and longer stays at our site.
o Member-Developed Content. Users develop the majority of the
content on our site on a voluntary basis for the benefit of all
of our users. As a result, we avoid some of the costs associated
with content development.
o Targeted Advertising. We allow advertisers to target their
advertisements based on both demographic information and affinity
group affiliations. Our volume of user traffic, frequency and
average length of use also draw advertisers to our site. Our
ability to reach users across a wide variety of interest areas
has made our site attractive to technology companies and
traditional consumer product and service companies. As of
December 31, 1998, approximately 70% of our advertisers were
branded consumer product and service companies.
OUR BUSINESS STRATEGY
Our goal is to be the leading online community site. We seek to attain
this goal through the following key strategies:
Improve User Experience. We will continue efforts to improve user
experience on our site by:
o launching new services to enhance our community;
o personalizing our site to the preferences of individual
members;
o simplifying user interfaces and otherwise improving the ease
of use;
o improving customer support;
o developing loyalty programs to reward members for increased
usage;
o expanding the suite of personal publishing/web site building
tools; and
o creating additional opportunities for participating in
existing affinity groups and expanding the number of
affinity groups.
Develop Brand Identity and Awareness. We intend to expand our presence
as a mass market site by building brand awareness. We plan to continue to
allocate a significant portion of our resources to develop our brand in the
same fashion as traditional consumer product and service companies. We
believe that establishing brand awareness among consumers is instrumental
in attracting new members to our site. It may also attract media buyers who
tend to favor well-known and trusted companies.
Further Develop Electronic Commerce. We intend to increase our
electronic commerce revenues by (1) selling select products directly to
consumers through the integration of Azazz into our web site and (2)
indirectly selling products to consumers through increasing the number of
electronic commerce partners who establish virtual storefronts in
theglobe.com Marketplace.
We plan to re-launch our Marketplace area in the second quarter of
1999. We believe that integrating Azazz with our existing electronic
commerce business should enhance our users' overall shopping experience.
The acquisition enables us to directly offer a broad array of products,
attractive prices and premium customer service. In particular, we will
differentiate ourselves from competitors by offering Azazz's "personal
shopper" application which enables customers to communicate directly with a
live customer service representative during each step of the online
shopping process.
Acquisition, Joint Venture and Alliance Strategy. We review
acquisition candidates and joint ventures in the ordinary course of
business, some of which may be material. We are currently in negotiations
with third parties for various transactions. These transactions may or may
not be consummated. Our focus is to seek transactions that would complement
our existing business, increase our traffic, augment the distribution of
our community, enhance our technological capabilities or increase our
electronic commerce revenues.
Expand Globally. We believe that significant opportunities exist to
capitalize on the growth of the Internet internationally. We are pursuing
strategic relationships with international companies to exploit
cross-marketing, co-branding and promotional opportunities. We believe that
users outside of the United States generate approximately 40% of our
traffic. Users outside of the United States are able to communicate and
publish on our site in their own languages. We have also received prominent
press coverage in Europe, Asia and Australia.
Enhance Membership Services. We offer additional Internet services,
including increased storage space for building home pages, through our gold
and platinum membership programs. To attract a wider subscriber base, we
intend to develop new membership programs offering premium content,
shopping clubs and entertainment services.
OUR PRODUCTS AND SERVICES
We provide users with the following products and services:
Free Services. We provide a range of free services to our members
including:
o business and technology news,
o real-time stock quotes and portfolio services,
o "my globe" personalized home pages,
o classified listings,
o a marketplace where members can purchase a variety of
products and services,
o home page building,
o discussion forums,
o chat rooms and
o e-mail.
By satisfying our users' personal and practical needs, we seek to
become our users' online home. Our primary revenue source is the sale of
advertising, with additional revenues generated through electronic commerce
and the sale of membership subscriptions for enhanced services. We derive
electronic commerce revenues in theglobe.com Marketplace through
merchandise sales by partners, and, beginning in the second quarter of
1999, from direct merchandise sales. We believe that the addition of
Azzaz's broad array of products, attractive prices and premium customer
service to our Marketplace will significantly enhance the shopping
experience for our millions of monthly users.
Premier Partners. We have relationships with premier partners who pay
a fixed monthly fee, generally from $5,000 to $100,000 per month, and often
a percentage of sales, to receive prominent placement in our Marketplace
and on our site. Premier partner agreements typically run for a period of
six months to three years. In some instances, premier partners pay us a
share of the sales over a particular threshold amount from users directed
to them from our site. Premier partners include:
o Lowestfare.com. Lowestfare.com offers discounted airline, car and
hotel reservations, vacation packages and cruises. Lowestfare.com
has entered into a three-year agreement with us to be our
exclusive provider of travel-related services. They also provide
us with content, including weather, mapping, destination
information and voice response e-mail. We provide Lowestfare.com
with advertising and Marketplace exposure.
o Republic Industries. Republic Industries owns the largest chain
of new vehicle dealerships in the United States and operates a
chain of used car megastores under the AutoNation USA brand name.
We provide AutoNation preferred placement in our auto category
under a three-year agreement.
o Cyberian Outpost. Cyberian Outpost sells computer hardware,
software and accessories directly to consumers online. We have
entered into a six month arrangement with Cyberian Outpost to be
our exclusive online computer hardware retailer.
o RSL Communications. We have a one-year arrangement with RSL for
Internet telephony services.
Member Subscriptions. We offer additional Internet services through
our Gold and Platinum membership packages. For example, these packages
provide additional storage space and the ability to host limited commercial
activity. The subscriptions cost $4.95 or $9.95 monthly, depending on the
level of service.
CORPORATE ALLIANCES AND RELATIONSHIPS
We have a number of relationships with partners and content providers
to provide our users with a full suite of web services. These arrangements
provide us with a cost-effective method for increasing our services without
incurring significant capital expenditures. Examples include:
o Business and Finance. By providing free real-time stock quotes,
stock screening analysis and portfolio tools from the Thomson
Financial Network and stock market editorial analysis and daily
articles from CBS MarketWatch, we are able to assist our users in
planning and tracking their investment decisions.
o Entertainment. Through entertainment news and gossip from E!
Online and music reviews and commentary from SonicNet, we offer
our users multiple viewpoints on the latest events in the
entertainment industry.
o Online Calendar and Address Book. We license Visto's Briefcase
application for use on our site which permits our users to manage
all of their appointments and contact information through our
site.
o Other Key Services. We provide sports highlights and scores from
Fox Sports, employment, real estate and automobile classified
listings from Classified Warehouse and weather forecasts from
AccuWeather.
ADVERTISING CUSTOMERS
With over 9.3 million unique users as of December 1998, and nearly 2.5
million members in the United States and abroad, we have attracted mass
market consumer product companies as well as technology-related businesses
to advertise on our site. We believe that our community site is well
positioned to capture a portion of the growing number of consumer product
and service companies advertising online.
Our advertising clients enter into short term agreements, which
typically last one to three months. Our clients generally receive a
guaranteed number of impressions for a fixed fee. In 1998, no single
advertiser accounted for more than 10% of total revenues and approximately
70% of our advertisers were repeat customers. In the last three months of
1998, approximately 147 advertising clients advertised on our site. Some of
our advertising clients include:
American Express Hilton Lee Jeans Polygram
AT&T Intel Levi's Sony
BellSouth J. Crew Microsoft 3Com
Coca Cola Kellogg's Brands Office Depot USWest
Dunkin' Donuts Kodak Pepsi Visa
ADVERTISING SALES AND DESIGN
We seek to distinguish ourselves from our competition by creating
unique advertising and sponsorship opportunities designed to build brand
loyalty for our corporate sponsors by seamlessly integrating their
advertising messages into our content. We can deliver advertising to
specific targets within our site's themed content areas, allowing
advertisers to single out and effectively deliver their messages to their
respective target audiences. For example, a company can target an
advertisement solely to males or females over 24 years of age coming to our
Business Theme area from Latin America. We believe that sophisticated
targeting is a critical element for capturing worldwide advertising budgets
for the Internet. Additionally, we intend to expand the amount and type of
demographic information we collect from our members, which will allow us to
offer more specific data to our advertising clients.
While our competition generally provides banner advertising as its
primary advertising option, we offer an assortment of advertising options
for our clients. We work with our advertising customers to meet their
needs. We offer advertisers:
o Banner advertising o Sweepstakes
o Button advertising o Content development
o Text links o Affinity packages for
advertising partners
o Pop-up advertisements o Direct marketing and lead
generation, if users have
opted in to these programs
o Log out links to full page o Market research for
advertisements advertising campaigns
o Various sponsorship programs
We have an internal sales organization of approximately 25
professionals. These professionals focus on both selling advertisements on
our web site and developing long-term strategic relationships with clients.
A significant portion of our sales personnel's income is commission based.
We have sales offices in New York City, Chicago and San Francisco and
intend to open additional sales offices in selected markets around the
world.
MARKETING AND PROMOTIONS
In 1998, we committed approximately $7.3 million to advertising in
traditional offline media and in online media. In March 1998, we launched
our advertising campaign through television, print, billboards, buses,
telephone kiosks, online media, and other marketing efforts. These efforts
were aimed at:
o generating additional traffic to our site,
o building and defining a desirable online destination in the minds
of present and potential online consumers, and
o creating a strong and viable brand within the Internet and
advertising industries.
We intend to continue to commit a significant part of our budget to
marketing our brand.
TECHNOLOGY
Our strategy is to operate our business through the application of
existing technologies. The various features of our online environment are
implemented using a combination of off-the-shelf and proprietary software
components. Whenever possible, we favor licensing and integrating
"best-of-breed" technology from industry leaders, including Oracle, Sun
Microsystems and Microsoft. We believe that this component approach is more
manageable, reliable and scalable than single-source solutions. In
addition, our emphasis on commercial components accelerates our development
time. We believe that this is an advantage in our rapidly evolving market.
In addition to being scalable, our system has many redundancies, which
benefit us if part of our system is down. Our servers are connected to the
Internet through a combination of links provided through three separate
carriers, AppliedTheory, UUNET and AT&T. This approach to connectivity
allows us to continue operations in the event of a failure in any carrier.
We plan to continue to upgrade our systems as necessary for our business
plan. Our system allows us to roll out upgrades incrementally on an
as-needed basis.
To efficiently manage our system, we have developed highly automated
methods of monitoring the performance of each system component. If any
subsystem fails, the failed subsystem is taken out of service and requests
are distributed among the remaining operational systems. We have also
developed tools to perform routine management tasks such as log processing
and content updates in an automated, remote-controlled fashion. We believe
that our investment in automation lessens the need for the additional
personnel that would otherwise be required to support the system as it
grows.
In the fourth quarter of 1998, we relocated our data processing
systems and servers to the New York Teleport in Staten Island, New York
under a three year lease with Telehouse International Corporation. The New
York Teleport facility provides security, electricity and premises for our
systems. More than 90% of our web site traffic is handled through this
facility. The facility has four independent battery-operated power
supplies, as well as four independent diesel generators designed to provide
power to these systems within seconds of a power surge. If required, the
diesel generators can supply the data center's power for several days.
Telehouse International Corporation does not guarantee that our Internet
access will be uninterrupted, error-free or secure.
We maintain additional server equipment at Exodus Communications,
Inc.'s facility in Seattle, Washington. Exodus provides and manages power,
environmentals and connectivity to the Internet through multiple links on a
24 hour-a-day, seven days per week basis. Exodus does not guarantee that
our Internet access will be uninterrupted, error-free or secure.
COMPETITION
The market for members, users and Internet advertising among web sites
is new and rapidly evolving. We expect the intense competition for members,
users and advertisers, as well as competition in the electronic commerce
market, to increase significantly. Barriers to entry are relatively
insubstantial and we face competitive pressures from many additional
companies both in the United States and abroad. See "Risk Factors -
Competition for members, users and advertisers, as well as competition in
the electronic commerce market, is intense and is expected to increase
significantly."
All types of web sites compete for users. Competitor web sites include
community sites, as well as "gateway" or "portal" sites and various other
types of web sites. We believe that the principal competitive factors in
attracting users to a site are:
o functionality of the web site,
o brand recognition,
o member affinity and loyalty,
o broad demographic focus,
o open access for visitors,
o critical mass of users, particularly for community-type sites,
and
o services for users.
We compete for users, advertisers and electronic commerce customers
with:
o other online community web sites, such as GeoCities, which has
agreed to be acquired by Yahoo!, Tripod and AngelFire,
subsidiaries of Lycos, and Xoom.com,
o search engines and other Internet "portal" companies, such as
Excite, InfoSeek, Lycos and Yahoo!,
o online content web sites, such as CNET, ESPN.com and ZDNet.com,
o publishers and distributors of television, radio and print, such
as CBS, NBC and CNN/Time Warner,
o general purpose consumer online services, such as America Online
and Microsoft Network,
o web sites maintained by Internet service providers, such as AT&T
WorldNet, EarthLink and MindSpring, and
o electronic commerce web sites, such as Amazon.com, Etoys and
CDNow.
Many of our existing competitors, as well as a number of potential new
competitors, have the following advantages:
o longer operating histories in the Internet market;
o greater name recognition;
o larger customer bases; and
o significantly greater financial, technical, and marketing
resources.
In addition, providers of Internet tools and services, including
community-type sites, may be acquired by, receive investments from, or
enter into other commercial relationships with larger, well-established and
well-financed companies, such as Microsoft and America Online. For example,
Excite has agreed to be acquired by @Home, America Online acquired Netscape
and Lycos announced a transaction with USA Network and Ticketmaster
Citysearch Online. In addition, there has been other significant
consolidation in the industry. This consolidation may continue in the
future. We could face increased competition in the future from traditional
media companies, including cable, newspaper, magazine, television and radio
companies. A number of these large traditional media companies, including
Disney, CBS and NBC, have been active in Internet related activities.
Many of our competitors, including other community sites, have
announced that they are contemplating developing Internet navigation
services and are attempting to become "gateway" or "portal" sites through
which users may enter the web. In the event these companies develop
successful "portal" sites, we could lose a substantial portion of our user
traffic. Furthermore, many non-community sites are seeking to develop
community aspects in their sites. Web browsers offered by Netscape and
Microsoft also increasingly incorporate prominent search buttons that
direct traffic to competing services. These features could make it more
difficult for Internet users to find and use our product and services. In
the future, Netscape, Microsoft and other browser suppliers may also more
tightly integrate products and services similar to ours into their browsers
or their browsers' pre-set home page. Additionally, entities that sponsor
or maintain high-traffic web sites or that provide an initial point of
entry for Internet viewers, such as the Regional Bell Operating Companies,
cable companies or Internet Service Providers, such as Microsoft and
America Online, offer and can be expected to consider further development,
acquisition or licensing of Internet search and navigation functions that
compete with us. These competitors could also take actions that make it
more difficult for viewers to find and use our products and services.
We believe that the number of Internet companies relying on
Internet-based advertising revenue, as well as the number of advertisers on
the Internet and the number of users, will increase substantially in the
future. We believe that the principal competitive factors in attracting
advertisers include the following:
o amount of traffic on a web site,
o brand recognition,
o customer service,
o the demographics of members and users of a web site,
o the ability to offer targeted audiences, and
o the overall cost effectiveness of the advertising medium offered.
In addition, many of our current advertising customers and strategic
partners have established collaborative relationships with some of our
existing and potential competitors. Accordingly, we will likely face
increased competition. We also compete with traditional advertising media,
including television, radio, cable and print for a share of advertisers'
total advertising budgets. This will result in increased pricing pressures
on our advertising rates, which could have a material adverse effect on us.
See "Risk Factors--We rely substantially on advertising revenues."
Additionally, the electronic commerce market is new and rapidly
evolving, and we expect the intense competition among electronic commerce
merchants to increase significantly. We generate substantially all of our
electronic commerce revenues from our electronic commerce partners in our
Marketplace. In the future, we expect to generate electronic commerce
revenues through our Azazz acquisition. Because the Internet allows
consumers to easily compare prices of similar products or services on
competing web sites and there are low barriers to entry for potential
competitors, gross margins for electronic commerce transactions may narrow
further in the future. Competition among Internet retailers or among our
electronic commerce partners may have a material adverse effect on our
ability to generate revenues through electronic commerce transactions or
from these electronic commerce partners.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard substantial elements of our site and underlying technology
as proprietary. We attempt to protect them by relying on intellectual
property laws. We also generally enter into confidentiality agreements with
our employees and consultants and in connection with our license agreements
with third parties. We also seek to control access to and distribution of
our technology, documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or
otherwise obtain and use our proprietary information without authorization
or to develop similar technology independently.
We pursue the registration of our trademarks in the United States and
internationally. Our efforts include:
o the registration of a United States trademark for the globe,
o the filing of United States trademark applications for
theglobe.com, theglobe.com logo, TGLO, A Whole New Life Awaits
You, globeDirect and globeStores,
o the submission of trademark applications for theglobe.com logo in
Australia, Brazil, Canada, China, the European Union, Hong Kong,
Israel, Japan, New Zealand, Norway, Russian Federation,
Singapore, South Africa, Switzerland and Taiwan, and
o the submission of trademark applications for A Whole New Life
Awaits You in the European Union and Switzerland.
Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which our services are distributed
or made available through the Internet. Policing unauthorized use of our
proprietary information is difficult. See "Risk Factors--We rely on
intellectual property and proprietary rights."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are subject to laws and regulations that are applicable to various
Internet activities. There are many legislative and regulatory proposals
under consideration by federal, state, local and foreign governments and
agencies, including matters relating to:
o online content,
o Internet privacy,
o Internet taxation,
o access charges,
o liability for information retrieved from or transmitted over the
Internet,
o domain names, and
o jurisdiction.
New regulations may increase our costs of compliance and doing business,
decrease the growth in Internet use and decrease the demand for our
services or otherwise have a material adverse effect on our business.
Online Content. Online content restrictions cover many areas,
including indecent or obscene content and gambling. Several federal and
state statutes prohibit the transmission of indecent or obscene information
and content, including sexually explicit information and content. The
constitutionality of some of these statues is unclear at this time. For
example, in 1997 the Supreme Court of the United States held that selected
parts of the federal Communications Decency Act of 1996 governing indecent
and patently offensive content were unconstitutional. Many other provisions
of the Communications Decency Act, including those relating to obscenity,
however, remain in effect. Prior to the Supreme Court's decision, a federal
district court in New York held that some provisions of the New York penal
law modeled on the Communications Decency Act violated the Constitution. A
companion provision of that law, however, was subsequently upheld. Since
the Supreme Court's decision, a federal district court in New Mexico held
that a provision of the New Mexico penal law purporting to make it unlawful
to disseminate over the Internet information that is harmful to minors
violated the Constitution.
The Child Online Protection Act became effective on November 20, 1998.
It requires web sites engaged in the business of the commercial
distribution of material that is deemed to be obscene or harmful to minors
to restrict minors' access to this material. However, the Child Online
Protection Act exempts from liability telecommunications carriers, Internet
service providers and companies involved in the transmission, storage,
retrieval, hosting, formatting or translation of third-party communications
where these companies do not select or alter the third-party material. On
February 1, 1999, a federal district court in Pennsylvania entered a
preliminary injunction preventing enforcement of the harmful-to-minors
portion of the act. The provisions of the act relating to obscenity,
however, remain in effect. We cannot predict the ultimate outcome or effect
of this litigation or the effect that the Child Online Protection Act may
have on our business.
The U.S. Department of Justice and some state Attorneys General have
intensified their efforts in taking action against businesses that operate
Internet gambling activities. In the last Congress, the Senate passed the
Internet Gambling Prohibition Act, which, if enacted, would have prohibited
placing or receiving a bet via the Internet in any state. A similar bill
has been introduced in the current Congress. We cannot predict whether
similar legislation will be enacted in the current Congress. Even in the
absence of new legislation directed specifically at Internet-based
gambling, existing federal and state statutes generally criminalize these
activities. During 1998, online gambling advertisers accounted for under
ten percent of our advertising revenues. The enactment of any legislation
in the United States or abroad that limits or prevents businesses from
operating online gambling would likely have an adverse effect on our
advertising revenue.
Some states, including New York and California, have enacted laws or
adopted regulations that expressly or as a matter of judicial
interpretation apply various consumer fraud and false advertising
requirements to parties who conduct business over the Internet. The
constitutionality and the enforceability of some of these statutes is
unclear at this time. For example, in 1997, a federal district court held
that a Georgia criminal statute violated the Constitution when it
prohibited Internet transmissions that falsely identify the sender or use
trade names or logos that would falsely state or imply that the sender was
legally authorized to use them.
Internet Privacy. In October 1998, the Children's Online Privacy
Protection Act was signed into law, which directs the FTC to develop
regulations for the collection of data from children by commercial web site
operators. Separately, the Federal Trade Commission Act prohibits unfair
and deceptive practices in and affecting commerce. The FTC Act authorizes
the FTC to seek injunctive and other relief for violations of the FTC Act,
and provides a basis for government enforcement of fair information
practices. For instance, failure to comply with a stated privacy policy may
constitute a deceptive practice in some circumstances and the FTC would
have authority to pursue the remedies available under the Act for any
violations. Furthermore, in some circumstances, information practices may
be inherently deceptive or unfair, regardless of whether the entity has
publicly adopted any privacy policies.
Some industry groups have proposed, or are in the process of
proposing, various voluntary standards regarding the treatment of data
collected over the Internet. In order to improve user and member confidence
in our privacy policies, we may incur expenses in obtaining the endorsement
of industry groups or in altering our current policies to comply with these
standards. We cannot assure you that the adoption of voluntary standards
will preclude any legislative or administrative body from taking
governmental action regarding Internet privacy.
In June 1998, the FTC released a report analyzing the effectiveness of
self-regulation as a means of protecting consumer privacy on the Internet.
The report concluded that industry self-regulation had not been adequate.
The report listed four core information practices that the FTC believes
must be part of any privacy protection effort: notice, choice, access and
security. The FTC has indicated that in the absence of effective
self-regulation, it may support federal legislation to address consumer
privacy concerns. We cannot assure you that the FTC's actions in this area
will not adversely affect our ability to collect demographic and personal
information from members, which could have an adverse affect on our ability
to attract advertisers. This could have a material adverse effect on us.
The FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. For example, on August
13, 1998, the FTC announced that it had entered into a proposed consent
order with one of our competitors. In its complaint, the FTC alleged that
this competitor engaged in three deceptive practices. First, the FTC
alleged that the company falsely represented that the personal identifying
information it collects through its membership application form is used
only to provide members the specific offers and products or services they
request. Second, the FTC alleged that the competitor falsely represented
that the "optional information" it collects through the application form is
not disclosed to third parties without the member's permission. Third, the
FTC alleged that the competitor had falsely represented that it collected
and maintained the information provided by children who joined various
neighborhoods on its site, when in fact the undisclosed third parties
actually collected and maintained the information. Without admitting that
these allegations are correct, the competitor agreed in a consent order
made final by the FTC on February 12, 1999, among other things, to post a
clear and prominent privacy statement on its home page and each location
where information is collected, disclosing the information collected, the
purpose to which the information would be used, the persons to whom the
information would be released, and the methods by which subscribers could
access and remove the information. The competitor also agreed to obtain
express parental consent before collecting information from children 12 and
under and to notify individuals from whom it previously collected personal
information and offer them the opportunity to have that information
deleted. Finally, the competitor agreed to post, for five years, a clear
and prominent hyperlink within its privacy statement directing visitors to
the FTC's site to view educational material on privacy. The final order
also contained an additional provision added during the public comment
period, permitting the competitor to collect or use personal information
from children to the extent permitted by the Children's Online Privacy
Protection Act or by regulations or guides issued under that act.
We are continuing to review our practices in light of the recent FTC
activity and the enactment of the Children's Online Privacy Protection Act.
However, we cannot predict the exact form of the regulations that the FTC
may adopt. Accordingly, we cannot assure you that our current practices
will comply with the regulatory scheme which the FTC ultimately adopts or
that we will not have to make significant changes to comply with such laws.
We include statements about user privacy in our user agreement with
new members. The current user agreement states that our members should not
have an expectation of privacy in their accounts and that the government or
third parties may force us to disclose member e-mail under some
circumstances, or that third parties may unlawfully intercept private
communications. Additionally, the user agreement states that we may make
our database of user information available to other parties for promotions
of and solicitations for their goods or services. In the user agreement,
each member expressly consents to disclosure of personally identifiable
information. We also inform each member that he or she has the ability to
remove their personal information or update selected personal information
from the information made available to third parties.
Regardless of the user agreement, we could be required under several
privacy statutes and regulations, including the Electronic Communications
Privacy Act of 1986, to disclose information about users in a variety of
contexts including pursuant to a subpoena or court order.
At the international level, the European Union adopted a directive
that requires EU member countries to impose restrictions on the collection
and use of personal data, effective October 25, 1998. Among other
provisions, the directive generally requires member countries to prevent
the transfer of personally-identifiable data to countries that do not offer
equivalent privacy protections. At present, the EU has indicated that the
United States does not provide protections equivalent to that of the
directive. The directive could, among other things, affect United States
companies that collect information over the Internet from individuals in EU
member countries, and may impose restrictions that are more stringent than
current Internet privacy standards in the United States. In response to the
directive, on November 4, 1998, the U.S. Department of Commerce published
for comment a set of safe harbor principles regarding privacy protection
for personally identifiable data. The Commerce Department proposed that
organizations that come within the safe harbor would be presumed to
maintain an adequate level of privacy protection and could continue to
receive personal data transfers from EU member countries. The draft safe
harbor provides for:
o notice regarding the organization's intended use of personal
data,
o the opportunity for an individual to choose how the organization
or a third party will use personal information,
o requirements regarding the security and integrity of personal
data and access by an individual to data regarding that
individual, and
o mechanisms for ensuring an organization's compliance with the
privacy principles.
The Commerce Department and the EU are engaged in ongoing discussions about
the application of the directive to United States companies. The Commerce
Department has indicated that it hopes to complete an agreement with the EU
by June 21, 1999. We cannot assure you that this directive will not
materially adversely affect our business.
Any additional legislation or regulations relating to consumer privacy
or the application or interpretation of existing laws and regulations could
affect the way in which we are allowed to conduct our business, especially
those aspects that contemplate the collection or use of our members'
personal information.
Internet Taxation. Governments at the federal, state and local level,
and some foreign governments, have made a number of proposals that would
impose additional taxes on the sale of goods and services and various other
Internet activities. In 1998, the federal Internet Tax Freedom Act was
signed into law, placing a three-year moratorium on state and local taxes
on Internet access and on multiple or discriminatory taxes on electronic
commerce. However, this moratorium exempts existing state or local laws.
The statute also creates a commission to study several Internet taxation
issues. We cannot assure you that future laws imposing taxes or other
regulations on Internet commerce would not substantially impair the growth
of Internet commerce and as a result materially adversely affect our
business.
The Clinton Administration has stated that the United States will
advocate in the World Trade Organization and other appropriate
international organizations that the Internet be declared a tariff-free
environment whenever it is used to deliver products and services. In
addition, the Clinton Administration has stated that the government should
impose no new taxes on Internet commerce, but rather that taxation should
be consistent with established principles of international taxation, should
avoid inconsistent national tax jurisdictions and double taxation and
should be simple to administer and easy to understand. However, we cannot
assure you that foreign countries will not seek to tax Internet
transactions.
Access Charges. Several telecommunications carriers are supporting
regulation of the Internet by the FCC in the same manner that the FCC
regulates other telecommunications services. These carriers have alleged
that the growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure, resulting in interruptions in
phone service. Incumbent local exchange telephone carriers have in the past
petitioned the FCC to regulate Internet service providers in a manner
similar to long-distance telephone carriers and to impose interstate access
charges on Internet service providers. In May 1997, however, the FCC
confirmed that Internet service providers will continue to be exempt from
interstate access charges. In August 1998, the Eighth Circuit Court of
Appeals upheld the FCC's authority to maintain the exemption. On February
25, 1999, the FCC adopted an order concerning payment by incumbent local
exchange carriers of reciprocal compensation for dial-up calls to Internet
service providers that obtain their local telephone service from
competitive local exchange carriers. The FCC found that Internet traffic is
largely interstate, and therefore subject to the FCC's jurisdiction,
because end user calls to Internet service providers do not terminate at
the Internet service providers' servers, but continue to Internet locations
that often are outside the state or country in which the call originates.
Although the FCC stated that the order does not require Internet service
providers to pay access charges for calls placed through their services,
the order does provide further support for a possible, ultimate finding
that access charges must be paid for at least some categories of Internet
services, such as Internet-based voice telephony. If the FCC were to
withdraw the exemption or take other action responding to
telecommunications carrier concerns, the costs of communicating through the
Internet could increase substantially, potentially slowing the growth in
Internet use. This could decrease demand for our services or increase our
cost of doing business.
Liability for Information Retrieved from or Transmitted over the
Internet. Materials may be downloaded and publicly distributed over the
Internet by the Internet services operated or facilitated by us or by the
Internet access providers with which we have relationships. These
third-party activities could result in potential claims against us for
defamation, negligence, copyright or trademark infringement or other claims
based on the nature and content of these materials. The Communications
Decency Act of 1996 provides that no provider or user of an interactive
computer service shall be treated as the publisher or speaker of any
information provided by another information content provider.
Future legislation or regulations or court decisions may hold us
liable for listings accessible through our web site, for content and
materials posted by members on their respective personal web pages, for
hyperlinks from or to the personal web pages of members, or through content
and materials posted in our chat rooms or bulletin boards. Liability might
arise from claims alleging that, by directly or indirectly providing
hyperlinks to web sites operated by third parties or by providing hosting
services for members' sites, we are liable for copyright or trademark
infringement or other wrongful actions by these third parties. If any
material on our web site contains informational errors, someone might sue
us for losses incurred in reliance on the erroneous information. We attempt
to reduce our exposure to potential liability through, among other things,
provisions in member agreements, user policies, insurance and disclaimers.
However, the enforceability and effectiveness of these measures are
uncertain.
In October 1998, the Digital Millennium Copyright Act, whose Title II
contains the Internet Copyright Infringement Liability Clarification Act,
was signed into law. This statute provides that, under some circumstances,
a service provider would not be liable for any monetary relief, and would
be subject to limited injunctive relief, for claims of infringement, based
on copyright materials transmitted by users over its digital communications
network or stored on its systems or under the control of or connected to
its systems. This statute also provides that, under some circumstances, a
service provider would not be liable for any claim if the service provider
acted in good faith to remove access to the infringing material. With
respect to infringement caused by storing material on a system or network,
in order to benefit from the protections of the act, a service provider
must appoint a designated agent to receive notifications of claimed
infringement and must provide information about that agent to the U.S.
Copyright Office and to the public in a publicly accessible place on the
service. We have appointed a designated agent, have provided that
information to the Copyright Office, and made it available to the public on
our site.
A third party provides our e-mail service. This relationship exposes
us to potential claims, including claims resulting from unsolicited e-mail
or "spamming," lost or misdirected messages, illegal or fraudulent use of
e-mail or interruptions or delays in e-mail service. Some states have
adopted laws that address spamming. Other states, including New York, are
considering, or have considered, similar legislation. For example,
California has adopted a law permitting electronic mail service providers
to sue parties who initiate unsolicited commercial messages in violation of
its e-mail policy, if the initiator has notice of that policy. California
also requires unsolicited e-mail advertisements to include opt-out
instructions with a toll-free telephone number or a valid return address in
the e-mail and requires senders of unsolicited e-mail advertisements to
honor opt-out requests. California also imposes criminal penalties on
parties who knowingly use Internet domain name of another party to send one
or more messages where such messages damage or cause damage to a computer,
computer system, or computer network. Similarly, the Virginia legislature
has passed, and the governor is considering signing a bill that, if
adopted, would make it a crime to send unsolicited bulk e-mail containing
false message headers or to sell software designed to do so and would
impose civil penalties for injuries caused by unsolicited bulk e-mail.
Washington has adopted a law that allows recipients of unsolicited e-mail
containing false headers and misleading subject lines to bring lawsuits
seeking damages of up to $500.00 for unsolicited commercial e-mail
messages. Potential liability for information disseminated through our
systems could lead us to implement measures to reduce our exposure to
liability. This could require the expenditure of substantial resources and
limit the attractiveness of our services. We attempt to reduce our exposure
to potential liability through, among other things, provisions in member
agreements, user policies and disclaimers. However, the enforceability and
effectiveness of these measures are uncertain.
We sell products directly to consumers and we also enter into
agreements with commerce partners and sponsors under which we are entitled
to receive a share of the revenue from the purchase of goods and services
through direct links from our site. These arrangements may expose us to
additional legal risks, including potential liabilities to consumers by
virtue of our involvement in providing access to these products or
services, even if we do not ourselves provide these products or services.
Our agreements with these parties often provide that these parties will
indemnify us against liabilities. However, we cannot assure you that this
indemnification will be enforceable or adequate. Although we carry general
liability insurance, our insurance may not cover all potential claims or
liabilities to which we are exposed. Any imposition of liability that is
not covered by insurance could have a material adverse effect on our
business.
The increased attention on liability issues relating to information
retrieved or transmitted over the Internet and legislative and
administrative proposals in this area could decrease the growth of Internet
use. This could decrease the demand for our services. We may also incur
significant costs in investigating and defending against these claims.
Domain Names. Domain names are the user's Internet addresses. Domain
names have been the subject of significant trademark litigation in the
United States. We have registered the domain names "theglobe.com,"
"shop.theglobe.com," "tglo.com" and "azazz.com." We cannot assure you that
third parties will not bring claims for infringement against us for the use
of these names. Moreover, because domain names derive value from the
individual's ability to remember the names, we cannot assure you that our
domain names will not lose their value if, for example, users begin to rely
on mechanisms other than domain names to access online resources.
The current system for registering, allocating and managing domain
names has been the subject of litigation and proposed regulatory reform. We
cannot assure you that our domain names will not lose their value, or that
we will not have to obtain entirely new domain names in addition to or in
place of our current domain names.
Jurisdiction. Our facilities are located primarily in New York.
However, due to the global reach of the Internet it is possible that the
governments of other states and foreign countries might attempt to regulate
Internet activity and our transmissions. They may take action against us
for violations of their laws. We cannot assure you that violations of these
laws will not be alleged or charged by state or foreign governments and
that these laws will not be modified, or new laws enacted, in the future.
Any actions of this type could have a material adverse effect on our
business.
EMPLOYEES
As of December 31, 1998, we had approximately 120 full-time employees,
including approximately 25 in sales and marketing, 55 in production, 30 in
finance and administration and 10 in technology. Our future success
depends, in part, on our ability to continue to attract, retain and
motivate highly qualified technical and management personnel. Competition
for these persons is intense. From time to time, we also employ independent
contractors to support our research and development, marketing, sales and
support and administrative organizations. Our employees are not represented
by any collective bargaining unit and we have never experienced a work
stoppage. We believe that our relations with our employees are good.
ITEM 2. PROPERTIES
Our headquarters are located in a leased facility in New York City and
consist of approximately 20,000 square feet of office space, a majority of
which is under a lease with approximately six months remaining. Our
principal web server equipment and operations are maintained by our
personnel at the New York Teleport facility in Staten Island, New York
under a Data Center Space Lease with Telehouse International Corporation of
America for 2,800 square feet of commercial space for a term of three
years. Additional web server equipment relating to our electronic commerce
business is located with and maintained by Exodus Communications, Inc. in
Seattle, Washington. We have also entered into two six-month leases for a
total of 3,943 square feet of office space in New York City. We intend to
relocate our headquarters in the second quarter of 1999 to a larger
facility and have entered into a fifteen-year lease for approximately
47,000 square feet of commercial space in New York City for this purpose.
We lease approximately 1,200 square feet of office space in San Francisco
for our West Coast sales office. In connection with our acquisition of
Azazz, we assumed a month-to-month lease for approximately 4,000 square
feet of office space in Kirkland, Washington. We believe that additional
commercial space will be available for lease at market rates.
ITEM 3. LEGAL PROCEEDINGS
From time to time we are named in claims arising in the ordinary
course of business. Currently, no legal proceedings or claims are pending
against or involve us that, in the opinion of management, could reasonably
be expected to have a material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of our stockholders during the
fourth quarter of the year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
Our common stock trades on the Nasdaq National Market under the Symbol
"TGLO". The following table sets forth the range of high and low closing
sales prices of our common stock for the period indicated:
Fiscal Quarter Ended High Low
-------------------------------- ------- -------
December 31, 1998
(commencing November 13, 1998) $63.500 $27.438
The market price of our common stock is highly volatile and fluctuates
in response to a wide variety of factors. See "Risk Factors--Our stock
price is volatile."
HOLDERS
On March 10, 1999, we had approximately 146 holders of record of
common stock. This does not reflect persons or entities who hold their
stock in nominee or "street" name through various brokerage firms.
DIVIDENDS
We have not paid any cash dividends on our common stock. We expect to
invest any future earnings to finance growth, and therefore do not intend
to pay dividends in the foreseeable future. Our board of directors will
determine if we pay any future dividends.
USE OF PROCEEDS
From October 1, 1998 to December 31, 1998, we have used an aggregate
of $4,064,887 which included net proceeds from our initial public offering
for investments in our web site, including enhancements to our server and
networking infrastructure and the functionality of our web site, and for
general corporate purposes, including working capital, expansion of our
sales and marketing capabilities and brand-name promotions. We have also
used a portion of the remainder of such net proceeds for acquisitions of
complementary businesses, services and technology.
RECENT SALES OF UNREGISTERED SECURITIES
During the period from October 1, 1998 through December 31, 1998, we
granted an aggregate of 43,250 options to purchase common stock to our
officers, directors and employees under our 1998 Stock Option Plan. These
options had a weighted average exercise price equal to $19.92 per share of
common stock. All of these option grants were made under the exemption from
the registration requirements of Rule 701 of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the financial statements and the notes thereto and the information
contained in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
(INCEPTION)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------- -----------
1998 1997 1996 1995
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 5,510 $ 770 $ 229 $ 27
Cost of revenues....................... 2,239 423 116 13
---------- ---------- ---------- -----------
Gross profit........................... 3,271 347 113 14
Operating expenses:
Sales and marketing.................. 9,299 1,248 276 1
Product development.................. 2,633 154 120 60
General and administrative........... 6,828 2,828 489 19
Non-recurring charge................... 1,370 -- -- --
---------- ---------- ---------- -----------
Total Operating Expenses............... 20,130 4,230 885 80
---------- ---------- ---------- -----------
Loss from operations................... (16,859) (3,883) (772) (66)
---------- ---------- ---------- -----------
Interest income (expense), net........ 892 335 22 --
---------- ---------- ---------- -----------
Loss before provision for income taxes. (15,967) (3,548) (750) (66)
---------- ---------- ---------- -----------
Provision for income taxes............. 79 36 -- --
---------- ---------- ---------- -----------
Net loss............................... $ (16,046) $ (3,584) $ (750) $ (66)
========== ========== ========== ===========
Basic and diluted net loss per share (1) $ (6.74) $ (3.13) $ (0.67) $ (0.06)
========== ========== ========== ===========
Weighted average shares outstanding
used in basic and diluted per share
calculation (1)...................... 2,381,140 1,146,773 1,125,000 1,125,000
========== ========== ========== ===========
DECEMBER 31,
---------------------------------------------
1998 1997 1996 1995
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-
term investments..................... $ 30,149 $ 18,874 $ 757 $ 587
Working capital........................ 27,009 17,117 648 575
Total assets........................... 38,130 19,462 973 647
Capital lease obligations, excluding
current installments................. 2,006 99 -- --
Total stockholders' equity............. 30,301 17,352 795 632
<FN>
(1) Weighted average shares do not include any common stock
equivalents because the inclusion of those common stock equivalents
would have been anti-dilutive. See the financial statements and notes
appearing elsewhere in this Form 10-K for the determination of shares
used in computing basic and diluted loss per share.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These forward-looking
statements can be identified by the use of predictive, future-tense or
forward-looking terminology, such as "believes," "anticipates," "expects,"
"estimates," "plans," "may," "intends," "will," or similar terms. Investors
are cautioned that any forward-looking statements are not guarantees of
future performance and involve significant risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors described under
"Risk Factors" and elsewhere in this report. The following discussion
should be read together with the financial statements and notes to those
statements included elsewhere in this report.
OVERVIEW
Our web site is one of the world's leading online communities with
nearly 2.3 million members in the United States and abroad. In December
1998, over 9.3 million unique users visited our site. Our web site is a
destination on the Internet where users are able to personalize their
online experience by publishing their own content and interacting with
others having similar interests. We facilitate this interaction by
providing various free services, including home page building, discussion
forums, chat rooms, e-mail and electronic commerce. Additionally, we
provide our users with news, business information, real time stock quotes,
weather, movie and music reviews, multi-player gaming and personals. By
satisfying our users' personal and practical needs, we seek to become our
users' online home. Our primary revenue source is the sale of advertising,
with additional revenues generated through electronic commerce
arrangements, development fees and the sale of membership service fees for
enhanced services.
We were incorporated in May 1995. For the period from inception
through December 1995, we had minimal sales and our operating activities
related primarily to the development of the necessary computer
infrastructure and initial planning and development. Operating expenses in
1995 were minimal. During 1996, we continued the foregoing activities and
also focused on recruiting personnel, raising capital and developing
programs to attract and retain members. In 1997, we
o moved our headquarters to New York City;
o expanded our membership base from less than 250,000 to almost 1
million;
o improved and upgraded our services;
o expanded our production staff;
o built an internal sales department; and
o began active promotion of theglobe.com web site to increase
market awareness.
During 1998, revenues and operating expenses increased as we placed a
greater emphasis on building our advertising revenues and memberships by
expanding our sales force and promoting theglobe.com brand.
To date, our revenues have been derived principally from the sale of
advertisements and sponsorship placements within our site and, to a lesser
extent, from subscription and electronic commerce revenues. Electronic
commerce revenues have not been significant to date, but are expected to
increase with the acquisition of Azazz, and as our existing electronic
commerce arrangements grow and new arrangements are entered into.
Advertising revenues constituted 89%, 77% and 95% of total revenues for the
years ended December 31, 1998, 1997 and 1996. We sell a variety of
advertising packages to clients, including banner advertisements, event
sponsorship, and targeted and direct response advertisements. Our
advertising revenues are derived principally from short-term advertising
arrangements. These arrangements average one to three months. We generally
guarantee a minimum number of impressions for a fixed fee. Advertising
revenues are recognized ratably in the period in which the advertisement is
displayed, if no significant company obligations remain and collection of
the resulting receivable is probable. Payments received from advertisers
before displaying their advertisements on our web site are recorded as
deferred revenues and are recognized as revenue ratably when the
advertisement is displayed. To the extent minimum guaranteed impression
levels are not met, we defer recognition of the corresponding revenues
until guaranteed levels are achieved.
In addition to advertising revenues, we derive other revenues
primarily from our membership service fees, electronic commerce revenue,
development fees and sponsorship placements within our site. Subscription
fees are recognized over the membership term. A number of recent
arrangements with our premier electronic commerce partners provide us with
a share of any sales resulting from direct links from the our web site. We
recognize revenues from our share of the proceeds from our electronic
commerce partners' sales upon notification from our partners of sales
attributable to our web site. To date, revenues from electronic commerce
arrangements have not been significant. In addition, in 1999 we began
direct electronic commerce sales to users. We also earn additional revenue
on sponsorship contracts for fees relating to the design, coordination, and
integration of the customer's content and links. We recognize these
development fees as revenue once the related activities have been
performed.
We incurred net losses of approximately $16.0 million in 1998, $3.6
million in 1997 and $750,200 in 1996. At December 31, 1998, we had an
accumulated deficit of $20.4 million. We recorded deferred compensation of
approximately $118,100 in 1998, $83,100 in 1997 and $25,000 in 1996 in
connection with the grant of various stock options to employees,
representing the difference between the deemed value of our common stock
for accounting purposes and the exercise price of the options at the date
of grant. This amount is presented as a reduction of stockholders' equity
and is being amortized over the vesting period of the applicable options,
generally three to five years. Amortization of deferred stock compensation
is allocated to the general and administrative expense line identified on
the statement of operations consistent with the classification of the
related personnel.
In addition, we incurred a charge of approximately $1.4 million to
earnings in the third quarter of 1998 in connection with the transfer of
warrants to acquire 225,000 shares of common stock by Dancing Bear
Investments, Inc., which was our principal shareholder at the date of
transfer, to some of our officers at approximately $2.91 per share. The
amount of this non-cash charge was based on the difference between the fair
market value of our stock at the date of transfer ($9.00 per share) and the
exercise price of the warrant of approximately $2.91 per share. This
expense was classified separately in the statement of operations as a
non-recurring charge.
RESULTS OF OPERATIONS
Revenues. Revenues increased to approximately $5.5 million in 1998 as
compared to $770,300 in 1997 and $229,400 in 1996. The year to year growth
resulted from an increase in (1) the number of advertisers and the average
commitment per advertiser, (2) our web site traffic, (3) the number of our
sales people and (4) marketing and advertising expenditures. Advertising
revenues were approximately $4.9 million or 89% of total revenues in 1998,
$592,400 or 77% of total revenues in 1997 and $216,800 or 95% of total
revenues in 1996. In 1998, we significantly increased our sales force and
began a marketing campaign to promote theglobe.com web site. We anticipate
that advertising revenues will continue to account for a substantial share
of our total revenues for the foreseeable future. Other revenues were
derived from membership service fees, development fees, electronic commerce
revenue shares and sponsorship placements within our web site. At December
31, 1998, we had deferred revenues of approximately $673,600. Barter
revenues were approximately 2% of total revenues for 1998, 22% for 1997 and
0% for 1996.
Cost of Revenues. Cost of revenues consist primarily of Internet
connection charges, web site equipment leasing costs, depreciation,
maintenance, barter advertising expenses, staff costs and related expenses
of operations personnel. Gross margins were 59% in 1998, 45% in 1997 and
49% in 1996. The increase in gross margin was primarily due to an increase
in revenues relative to the increase in cost of revenues. The absolute
dollar increase in cost of revenues was due to an increase in Internet
connection costs to support the increase in web site traffic, as well as an
increase in equipment costs, depreciation and staff costs required to
support the expansion of our site and services. In addition, we recorded
barter advertising expenses during 1998 and 1997, which was equivalent to
the barter advertising revenues recorded in the same period. The gross
margins exclusive of the barter transactions were 60% in 1998 and 57% in
1997. In 1996, we did not enter into any barter transactions. During the
fourth quarter of 1998, we moved our web site hosting functions to a
separate facility in Staten Island, New York. The new facility will allow
us to support our expanded services and content.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of salaries and related expenses of sales and marketing
personnel, commissions, advertising and public relations expenses. Sales
and marketing expenses were approximately $9.3 million or 169% of total
revenues in 1998, $1.2 million or 162% of total revenues in 1997, and
$275,900 or 120% of total revenues in 1996. The year-to-year increase in
sales and marketing expenses was primarily attributable to expansion of our
online and print advertising, public relations and other promotional
expenditures, as well as increased sales and marketing personnel and
related expenses required to implement our marketing strategy. Sales and
marketing expenses also increased as a result of our decision to shift our
advertising to an internal sales department in the second quarter of 1997.
Product Development Expenses. Product development expenses include
professional fees, staff costs and related expenses associated with the
development, testing and upgrades to our web site as well as expenses
related to its editorial content and community management and support.
Product development expenses were approximately $2.6 million or 48% of
total revenues in 1998, $153,700 or 20% of total revenues in 1997, and
$120,000 or 52% of total revenues in 1996. The increase in absolute dollars
in product development expenses was primarily attributable to increased
staffing levels required to support our web site and to enhance its content
and features. Product development expenses also increased as a result of
the launch of our web site redesign in November 1998. We intend to continue
recruiting and hiring experienced product development personnel and to make
additional investments in product development.
General and Administrative Expenses. General and administrative
expenses consist primarily of salaries and related costs for general
corporate functions, including finance, human resources, facilities and
legal, along with professional fees and bad debt expense and other
corporate expenses. General and administrative expenses were approximately
$6.8 million or 124% of total revenues in 1998, $2.8 million or 367% of
total revenues in 1997, and $489,100 or 213% of total revenues in 1996. The
absolute dollar increase in these expenses was primarily due to increased
salaries and related expenses associated with our management's employment
contracts, hiring of additional personnel, and increases in professional
fees and travel. The increased salaries also reflect the highly competitive
nature of hiring in the new media industry. We expect that we will incur
additional general and administrative expenses as we hire additional
personnel and incur additional costs related to the growth of our business
and operation as a public company, including directors' and officers'
liability insurance, investor relations programs and professional service
fees. Accordingly, we anticipate that general and administrative expenses
will continue to increase in absolute dollars.
Non-recurring charges. We recorded a non-recurring, non-cash charge of
approximately $1.4 million in the third quarter of 1998. This charge was in
connection with the transfer of outstanding warrants to acquire 225,000
shares of common stock by Dancing Bear Investments, which was our principal
shareholder at the time of the transfer, to some of our officers. There was
no similar charge in 1997 or 1996.
Other Income (expense). Other income (expense) includes interest
income from our cash and investments, interest expenses related to our
capital lease obligations, and realized gains and losses from sale of
short-term investments. The year-to-year increase in interest and dividend
income was due to a higher average cash, cash equivalent and investment
balance as a result of the proceeds received from the issuance of shares of
our preferred stock in the third quarter of 1997, and the issuance of
common stock in connection with our initial public offering in November
1998.
Interest and other expense increased in 1998 due to new capital lease
obligations. We entered into our first capital lease in late December 1997.
As a result, interest expense from capital lease obligations did not begin
until 1998.
Income Taxes. Income taxes were approximately $78,900 in 1998, $36,100
in 1997 and -0- in 1996. These income taxes were based solely on state and
local taxes on business and investment capital. These taxes increased from
year to year due to an increase in our average equity balance. The average
equity balance increased as a result of the proceeds received from our
issuance of shares of preferred stock in the third quarter of 1997, and our
issuance of common stock in connection with our initial public offering in
November 1998. Our effective tax rate differs from the statutory federal
income tax rate, primarily as a result of the uncertainty regarding our
ability to utilize net operating loss carryforwards. Due to the uncertainty
surrounding the timing or realization of the benefits of our net operating
loss carryforwards in future tax returns, we have placed a 100% valuation
allowance against our deferred tax assets. As of December 31, 1998, we had
approximately $29.2 million of federal and state net operating loss
carryforwards for tax reporting purposes available to offset future taxable
income. Our federal net operating loss carryforwards will expire beginning
in 2001 through 2018, if not utilized. The Tax Reform Act of 1986 imposes
substantial restrictions on the utilization of net operating losses and tax
credits in the event of an "ownership change" of a corporation. Due to the
change in our ownership interests in the third quarter of 1997, as defined
in the Internal Revenue Code, future utilization of our net operating loss
carryforwards will be affected by limitations or annual restrictions.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, we had approximately $29.3 million in cash
and cash equivalents and approximately $898,500 in marketable securities.
Net cash used in operating activities was approximately $13.5 million in
1998, $1.9 million in 1997 and $601,600 in 1996. The increase in net cash
used in 1998 resulted primarily from an increase in our expenses which
resulted in increased net operating losses. In addition we had a higher
level of receivables due to increased revenues and an increase in prepaid
expenses. These items were partially offset by an increase in accounts
payable and deferred revenues. The 1997 increase in net cash used was
primarily due to an increase in net operating loss and a higher account
receivable balance. These items were partially offset by the timing of
payments associated with our 1997 accrued bonuses paid in the first quarter
of 1998, as well as an increase in accounts payable and accrued expenses.
Net cash provided (used) in investing activities was approximately
$9.6 million in 1998, $(13.2) million in 1997 and $(138,300) in 1996. Net
cash provided by investing activities in 1998 was primarily related to the
sales of short-term investments to finance our working capital needs. These
sales were partially offset by approximately $1.7 million in security
deposits required for capital leases and the purchase of property and
equipment in connection with the build out of our infrastructure. Net cash
used in investing activities in 1997 was primarily related to the purchase
of securities with the proceeds from our private placement in the third
quarter of 1997. Cash used in investing activities in 1996 was related to
the purchase of property and equipment.
Net cash provided by financing activities was approximately $27.2
million in 1998, $20.2 million in 1997 and $910,000 in 1996. Net cash
provided by financing activities during 1998 consisted primarily of $27.3
million from the issuance of 3,481,667 shares of common stock in connection
with our initial public offering in November 1998. The net cash provided by
financing activities in 1997 consisted primarily of approximately $20.3
million from preferred stock issuances. These amounts were partially offset
by approximately $130,500 in financing costs related to the private
placements. The approximately $910,000 of net cash provided in 1996 was
from our private placements of preferred stock.
On February 1, 1999, we purchased factorymall.com, inc., a leading
interactive department store. We expect to invest an aggregate of up to
approximately $3.8 million of working capital in 1999 to support the future
operations of factorymall.com, inc.
Our capital requirements depend on numerous factors, including market
acceptance of our services, the amount of resources we devote to
investments in our web site, the resources we devote to marketing and
selling our services and our brand promotions and other factors. We have
experienced a substantial increase in our capital expenditures and lease
arrangements since our inception consistent with the growth in our
operations and staffing, and we anticipate that this will continue for the
foreseeable future. Additionally, we will continue to evaluate possible
investments in businesses, products and technologies, and we plan to expand
our sales force. We believe that our current cash and cash equivalents,
which primarily resulted from our initial public offering, together with
cash flows will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for our existing business for at
least 12 months. However, we may need to raise additional funds during 1999
to obtain or operate any acquired businesses or joint venture arrangements.
See "Risk Factors -- We may need to raise additional funds, including
through the issuance of debt."
IMPACT OF THE YEAR 2000
The Year 2000 issue is the potential for system and processing
failures of date-related data and the result of computer-controlled systems
using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the Year 2000. This could
result in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business
activities.
State of Readiness. We may be affected by Year 2000 issues related to
non-compliant information technology systems or non-information technology
systems operated by us or by third parties. We have substantially completed
an assessment of our internal and external third-party information
technology systems and non-information technology systems and a test of the
information technology systems that support our web site. At this point in
our assessment and testing, we are not aware of any Year 2000 problems
relating to systems we or third parties operate that would have a material
effect on our business or financial condition, without taking into account
our efforts to avoid these problems. However, we cannot assure you that
there will be no Year 2000 problems
Our information technology systems consist of software developed
either in-house or purchased from third parties, and hardware purchased
from vendors. We have contacted our principal vendors of hardware and
software. All of those contacted vendors have notified us that the hardware
and software that they supplied to us is Year 2000 compliant.
We have also substantially completed an assessment of our
non-information technology systems which we have identified as possibly
having Year 2000 issues. At this point in our assessment, we are not aware
of any Year 2000 problems relating to these systems which would have a
material effect on our business or financial condition, without taking into
account our efforts to avoid these problems.
Our information technology systems and other business resources rely
on information technology systems and non-information technology systems
provided by service providers and therefore may be vulnerable to those
service providers' failure to remediate their own Year 2000 issues. These
service providers include those for our network and e-mail services and
landlords for our leased office spaces. We have contacted these principal
service providers and we have been notified that the information technology
and non-information technology systems which they provide to us are Year
2000 compliant.
Cost. Based on our assessment to date, we do not anticipate that costs
associated with remediating our non-compliant systems will be material.
Risks. To the extent that our assessment is finalized without
identifying any material non-compliant information technology or
non-information technology systems operated by us or by third parties, the
most reasonably likely worst case Year 2000 scenario is the failure of one
or more of our vendors of hardware or software or one or more providers of
non-information technology systems to properly identify any Year 2000
compliance issues and remediate any issues before the end of the second
quarter of 1999. A failure could prevent us from operating our business,
prevent users from accessing our web site or change the behavior of
advertising customers or persons accessing our web site. We believe that
the primary business risks, in the event of a failure, would include but
not be limited to:
o lost advertising revenues,
o increased operating costs,
o loss of customers or persons accessing our web site,
o other business interruptions of a material nature, and
o claims of mismanagement, misrepresentation, or breach of
contract.
Contingency Plan. As discussed above, we are engaged in an ongoing
Year 2000 assessment and testing. Following the completion of the
assessment, we plan to conduct a full-scale Year 2000 simulation of our
information technology systems by the end of the second quarter of 1999.
The results of this simulation and our assessment will be taken into
account in determining the nature and extent of any contingency plans.
EFFECTS OF INFLATION
Due to relatively low levels of inflation in 1996, 1997 and 1998,
inflation has not had a significant effect on our results of operations
since inception.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
We adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" as of January
1, 1998. SFAS No. 130 requires us to report in our financial statements, in
addition to our net income (loss), comprehensive income (loss), which
includes all changes in equity during a period from non-owner sources
including, as applicable, foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on investments in debt and
equity securities. We adopted SFAS 130 as of December 31, 1997 and have
presented comprehensive income for all periods presented in the Statement
of Shareholders' Equity.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. We have determined that we do not
have any separately reportable business segments.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which
establishes guidelines for the accounting for the costs of all computer
software developed or obtained for internal use. We adopted SOP 98-1
effective for the year ended December 31, 1998. The adoption of SOP 98-1 is
not expected to have a material impact on our financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The statement is not expected to affect us as we do
not have any derivative instruments or hedging activities.
RISK FACTORS
In addition to the other information in this report, the following
factors should be carefully considered in evaluating our business and
prospects.
OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT.
theglobe was founded in May 1995. Accordingly, we have a limited
operating history for you to use in evaluating us and our prospects. Our
prospects should be considered in light of the risks encountered by
companies in the early stages of development, particularly companies
operating in new and rapidly evolving markets like the Internet. We may not
successfully address these risks. For example, we may not be able to:
o maintain and increase levels of user and member traffic on our
web site;
o maintain and increase the percentage of our advertising inventory
sold;
o adapt to meet changes in our markets and competitive
developments;
o develop or acquire content for our services;
o generate electronic commerce-related revenues; and
o identify, attract, retain and motivate qualified personnel.
REVENUE GROWTH IN PRIOR PERIODS MAY NOT BE INDICATIVE OF FUTURE GROWTH.
We achieved significant revenue growth in 1998. Our limited operating
history makes prediction of future growth difficult. Accurate predictions
of future growth are also difficult because of the rapid changes in our
markets. Accordingly, investors should not rely on past revenue growth
rates as a prediction of future growth.
WE ANTICIPATE INCREASED OPERATING EXPENSES AND EXPECT TO CONTINUE TO INCUR
LOSSES.
To date, we have not been profitable, and we expect that we will
continue to incur net losses for the foreseeable future. We had net losses
of approximately $750,200 for 1996, $3.6 million for 1997, and $16.0
million for 1998. As of December 31, 1998, we had an accumulated deficit of
approximately $20.4 million. The principal causes of our losses are likely
to continue to be:
o increased general and administrative expenses;
o costs resulting from enhancement of our services;
o significant increases in operating expenses in the next several years,
especially in the areas of sales and marketing;
o increased expenses necessary to maintain and develop brand identity;
o growth of our sales force;
o expansion of our business facilities; and
o failure to generate sufficient revenue in light of increased costs.
We will need to generate significantly increased revenues to achieve
profitability, particularly if we are unable to adjust our expenses in
light of any earnings shortfall. We cannot assure you that we will ever
achieve or sustain profitability.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND VARY BY SEASON.
Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter
to quarter in the future. As a result, quarter to quarter comparisons of
our revenues and operating results may not be meaningful. In addition, due
to our limited operating history and our new and unproven business model,
we cannot predict our future revenues or results of operations accurately.
It is likely that in one or more future quarters our operating results will
fall below the expectation of securities analysts and investors. If this
happens, the trading price of our common stock would almost certainly be
materially and adversely affected.
The factors which will cause our quarterly operating results to
fluctuate include:
o the level of traffic on our web site;
o the overall demand for Internet advertising and electronic
commerce;
o the addition or loss of advertisers and electronic commerce
partners on our web site;
o usage of the Internet;
o seasonal trends in advertising and electronic commerce sales and
member usage;
o capital expenditures and other costs relating to the expansion of
our operations;
o the incurrence of costs relating to acquisitions; and
o the timing and profitability of acquisitions, joint ventures and
strategic alliances.
We derive a substantial portion of our revenues from the sale of
advertising under short-term contracts. These contracts average one to
three months in length. As a result, our quarterly revenues and operating
results are, to a significant extent, dependent on advertising revenues
from contracts entered into within the quarter, and on our ability to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. We believe that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters. If the Internet transitions from an emerging to a more developed
form of media, these same patterns may develop in Internet advertising
sales. Internet advertising expenditures may also develop a different
seasonality pattern. Traffic levels on our site and the Internet have
typically declined during the summer and year-end vacation and holiday
periods.
In addition to selling advertising, an increasing portion of our
revenues may be generated from electronic commerce through our Azazz
subsidiary. We also have existing electronic commerce arrangements with
third parties for the sale of merchandise on our web site which are
terminable upon short notice. As a result, our revenues from electronic
commerce may fluctuate significantly from period to period depending on the
level of demand for electronic commerce on our site and the continuation of
our electronic commerce arrangements.
WE DEPEND ON OUR MEMBERS FOR CONTENT AND PROMOTION.
We depend substantially upon member involvement for content and
word-of-mouth promotion. Particularly, we depend upon the voluntary efforts
of some highly motivated members who are most active in developing content
to attract other Internet users to our site. This member involvement
reduces the need for us to spend funds on content development and site
promotion. However, we cannot assure you that these members will continue
to effectively generate significant content or promote our site. Our
business may be materially and adversely affected if our most highly active
members become dissatisfied with our services or our focus on the
commercialization of those services or for any other reason stop generating
content that effectively promotes our site.
OUR BUSINESS MODEL IS NEW AND UNPROVEN.
Our business model is new and relatively unproven. This model depends
upon our ability to obtain more than one type of revenue source by using
our community platform. To be successful, we must, among other things,
develop and market products and services that achieve broad market
acceptance by our users, advertisers and electronic commerce vendors. We
must also market products directly to users and have users purchase
products through our site. We cannot assure you that any Internet
community, including our site, will achieve broad market acceptance. We
also cannot assure you that our business model will be successful, that it
will sustain revenue growth or that it will be profitable.
Additionally, the market for our products and services is new, rapidly
developing and characterized by an increasing number of market entrants. As
is typical of most new and rapidly evolving markets, demand and market
acceptance for recently introduced products and services are highly
uncertain and risky. Moreover, because this market is new and rapidly
evolving, we cannot predict our future growth rate, if any. If this market
fails to develop, develops more slowly than expected or becomes saturated
with competitors, or if our products and services do not achieve or sustain
market acceptance, our business would be materially and adversely affected.
WE MAY BE UNSUCCESSFUL IN DEVELOPING BRAND AWARENESS; BRAND IDENTITY IS
CRITICAL TO US.
We believe that establishing and maintaining awareness of
"theglobe.com" brand name is critical to attracting and expanding our
member base, the traffic on our web site and advertising and electronic
commerce relationships. If we fail to promote and maintain our brand or our
brand value is diluted, our business, operating results and financial
condition could be materially adversely affected. The importance of brand
recognition will increase because low barriers to entry continue to result
in an increased number of web sites. To promote our brand, we may be
required to continue to increase our financial commitment to creating and
maintaining brand awareness. We may not generate a corresponding increase
in revenues to justify these costs. Additionally, if members, other
Internet users, advertisers and customers do not perceive our community
experience to be of high quality, or if we introduce new services or enter
into new business ventures that are not favorably received by these
parties, the value of our brand could be diluted.
WE RELY SUBSTANTIALLY ON ADVERTISING REVENUES.
We derive a substantial portion of our revenues from the sale of
advertisements on our web site. We expect to continue to do so for the
foreseeable future. During 1998, advertising revenues represented 89% of
our net revenues. Our business model and revenues are highly dependent on
the amount of traffic on our site. The level of traffic on our site
determines the amount of advertising inventory we can sell. Our ability to
generate significant advertising revenues depends, in part, on our ability
to create new advertising programs without diluting the perceived value of
our existing programs. Our ability to generate advertising revenues will
also depend, in part, on the following:
o advertisers' acceptance of the Internet as an attractive and
sustainable medium;
o advertisers' willingness to pay for advertising on the Internet
at current rates;
o the development of a large base of users of our products and
services;
o our level of traffic;
o the effective development of web site content that attracts users
having demographic characteristics attractive to advertisers; and
o price competition among web sites.
We cannot assure you that the market for Internet advertising will
continue to emerge or become sustainable. If the Internet advertising
market develops slower than we expect our business performance would be
materially adversely affected. To date, substantially all our advertising
contracts have been for terms averaging one to three months in length, with
relatively few longer term advertising contracts. Additionally, our
advertising customers may object to the placement of their advertisements
on some members' personal homepages, the content of which they deem
undesirable. For any of the foregoing reasons, we cannot assure you that
our current advertisers will continue to purchase advertisements on our
site. We also compete with traditional advertising media, including
television, radio, cable and print, for a share of advertisers' total
advertising budgets. This will result in increased pricing pressures on our
advertising rates, which could have a material adverse effect on us.
WE RELY ON THIRD PARTIES OVER WHOM WE HAVE LIMITED CONTROL TO MANAGE THE
PLACEMENT OF ADVERTISING ON OUR WEB SITE.
The process of managing advertising within a large, high-traffic web
site such as ours is an increasingly important and complex task. We license
our advertising management system from DoubleClick, Inc. under an agreement
expiring April 15, 2000. DoubleClick may terminate the agreement upon 30
days' notice (1) if we breach the agreement or (2) if DoubleClick
reasonably determines that we have used their advertising management system
in a manner that could damage their technology or which reflects
unfavorably on DoubleClick's reputation. No assurance can be given that
DoubleClick would not terminate the agreement. Any termination and
replacement of DoubleClick's service could disrupt our ability to manage
our advertising operations. Additionally, we have entered into a contract
with Engage Technologies, Inc. for the license of proprietary software to
manage the placement of advertisement on our web site. This software is
still being implemented and our relationship under the contract has not yet
been material. There can be no assurance that this software will
effectively manage the placement of advertisements on our web site and that
errors will not occur.
To the extent that we encounter system failures or material
difficulties in the operation of our advertising management systems, we may
o be unable to deliver banner advertisements and sponsorships
through our site; and
o be required to provide additional impressions to our advertisers
after the contract term.
Our obligations to provide additional impressions would displace
saleable advertising inventory. This would reduce revenues and could have a
material adverse effect on us.
WE DEPEND SUBSTANTIALLY ON OUR KEY PERSONNEL.
Our performance is substantially dependent on the continued service of
our senior management and key technical personnel, all of whom have only
worked together for a short time. In particular, our success depends on the
continued efforts of our senior management team, especially our Co-Chief
Executive Officers, Co-Presidents, and co-founders, Todd V. Krizelman and
Stephan J. Paternot. We do not carry key person life insurance on any of
our personnel. The loss of the services of any of our executive officers or
other key employees would likely have a material adverse effect on our
business.
WE DEPEND ON HIGHLY QUALIFIED TECHNICAL AND MANAGERIAL PERSONNEL.
Our future success also depends on our continuing ability to attract,
retain and motivate highly qualified technical and managerial personnel.
Our business plan requires us to increase our employee base significantly
over the next 12 months. Competition for employees in our industry is
intense. We may be unable to attract, assimilate or retain highly qualified
technical and managerial personnel in the future. Wages for managerial and
technical employees are increasing and are expected to continue to increase
in the future. We have from time to time in the past experienced, and we
expect to continue to experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications. If we
are unable to attract and retain the technical and managerial personnel
necessary to support the growth of our business, our business would likely
be materially and adversely affected.
WE MAY NOT EFFECTIVELY MANAGE OUR GROWTH; OUR MANAGEMENT TEAM IS
INEXPERIENCED IN THE MANAGEMENT OF A LARGE PUBLIC COMPANY.
Our recent growth has placed significant strains on our resources. To
manage our future growth, we must continue to implement and improve our
operational and financial software systems and expand and train our
employee base. Some of our key employees were hired during 1998, including
our Chief Operating Officer, who joined us in August 1998 and our Chief
Financial Officer, who joined us in July 1998. In addition, our Director of
Marketing, Director of Advertising Sales, General Counsel, Director of
Business Development, Director of Communications and Director of Human
Resources each have been with us for less than two years. Furthermore, the
members of our current senior management, other than the Chairman, have not
had any previous experience managing a public company or a large operating
company. Accordingly, we cannot assure you that:
o we will be able to effectively manage the expansion of our
operations;
o our key employees will be able to work together effectively as a
team to successfully manage our growth;
o we will be able to hire, train and manage our growing employee
base;
o our systems, procedures or controls will be adequate to support
our operations; and
o our management will be able to achieve the rapid execution
necessary to fully exploit the market opportunity for our
products and services.
Our inability to manage growth effectively could have a material
adverse effect on our business.
OUR CHAIRMAN AND VICE PRESIDENT OF CORPORATE DEVELOPMENT HAVE OTHER
INTERESTS AND TIME COMMITMENTS; WE HAVE CONFLICTS OF INTEREST WITH SOME OF
OUR DIRECTORS.
Because our Chairman and our Vice President of Corporate Development
are officers or employees of other companies, we will have to compete for
their time. Michael S. Egan is our Chairman. Mr. Egan serves as the
Chairman of our board of directors and as an executive officer with primary
responsibility for day-to-day strategic planning and financing
arrangements. Mr. Egan also is the controlling investor of Dancing Bear
Investments, an entity controlled by Mr. Egan, which is our majority
stockholder. Edward A. Cespedes is our Vice President of Corporate
Development with primary responsibility for corporate development
opportunities including mergers and acquisitions. Mr. Cespedes also serves
as a Managing Director of Dancing Bear Investments. Messrs. Egan and
Cespedes have not committed to devote any specific percentage of their
business time with us. Accordingly, we compete with Dancing Bear
Investments and related entities for their time.
We have begun advertising electronic commerce arrangements with
entities controlled by Mr. Egan and by Republic Industries, Inc., an entity
affiliated with H. Wayne Huizenga, one of our directors. These arrangements
were not the result of arm's-length negotiations, but we believe that the
terms of these arrangements are on comparable terms as if they were entered
into with unaffiliated third parties. Due to their relationships with their
related entities, Messrs. Egan, Cespedes and Huizenga will have an inherent
conflict of interest in making any decision related to transactions between
their related entities and us. We intend to review related party
transactions in the future on a case-by-case basis.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL AND OTHER CHANGES.
The markets in which we compete are characterized by:
o rapidly changing technology,
o evolving industry standards,
o frequent new service and product announcements, introductions and
enhancements, and
o changing consumer demands.
We may not be able to keep up with these rapid changes. In addition,
these market characteristics are heightened by the emerging nature of the
Internet and the apparent need of companies from varying industries to
offer Internet-based products and services. As a result, our future success
depends on our ability to adapt to rapidly changing technologies and
standards. We will also need to continually improve the performance,
features and reliability of our services in response to competitive
services and product offerings and the evolving demands of the marketplace.
In addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could
require us to incur substantial expenditures to modify our services or
infrastructure and could fundamentally affect the nature of our business.
WE HAVE CAPACITY CONSTRAINT AND SYSTEM DEVELOPMENT RISKS.
A key element of our strategy is to generate a high volume of user
traffic. Our ability to attract advertisers and to achieve market
acceptance of our products and services and our reputation depend
significantly upon the performance of our network infrastructure, including
our server, hardware and software. Any system failure, including network,
software or hardware failure, that causes an interruption in our service or
a decrease in responsiveness of our web site could result in reduced
traffic and reduced revenue, and could impair our reputation. Our web site
must accommodate a high volume of traffic and deliver frequently updated
information. Our web site has in the past and may in the future experience
slower response times for a variety of reasons, including system failures
and an increase in the volume of user traffic on our web site. Accordingly,
we face risks related to our ability to accommodate our expected customer
levels while maintaining superior performance. In addition, slower response
time may result in fewer users at our site or users spending less time at
our site. This would decrease the amount of inventory available for sale to
advertisers. Accordingly, any failure of our server and networking systems
to handle current or higher volumes of traffic at sufficient response times
would have a material adverse effect on our business.
In the fourth quarter of 1998, we moved our principal server to the
New York Teleport facility in Staten Island, New York under a lease with
Telehouse International Corporation of America. More than 90% of our web
site traffic is handled through this facility. Telehouse International does
not guarantee that our Internet access will be uninterrupted, error-free or
secure. Additionally, we maintain computer hardware, servers and operations
relating to our Azazz business in Seattle, Washington which are hosted by
Exodus Communications, Inc. Although Exodus provides comprehensive
facilities management services, including human and technical monitoring of
all production servers 24 hours-per-day, seven days-per-week, Exodus does
not guarantee that our Internet access will be uninterrupted, error-free or
secure. Our operations depend on the ability to protect our systems against
damage from unexpected events, including fire, power loss, water damage,
telecommunications failures, and vandalism. Any disruption in our Internet
access could have a material adverse effect on us. In addition, computer
viruses, electronic break-ins or other similar disruptive problems could
also materially adversely affect our web site. Our reputation and
theglobe.com brand could be materially and adversely affected by any
problems to our site. Our insurance policies may not adequately compensate
us for any losses that may occur due to any failures or interruptions in
our systems. We do not presently have any secondary off-site systems or a
formal disaster recovery plan.
In addition, our users depend on Internet service providers, online
service providers and other web site operators for access to our web sites.
Many of them have experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems. Moreover, the Internet infrastructure may not be
able to support continued growth in its use. Furthermore, we depend on
hardware suppliers for prompt delivery, installation and service of
equipment used to deliver our products and services. Any of these problems
could materially adversely affect our business.
HACKERS MAY ATTEMPT TO PENETRATE OUR SECURITY SYSTEM; ONLINE SECURITY
BREACHES COULD HARM OUR BUSINESS.
Consumer and supplier confidence in our web site depends on
maintaining relevant security features. Substantial or ongoing security
breaches on our system or other Internet-based systems could significantly
harm our business. We incur substantial expenses protecting against and
remedying security breaches. Security breaches also could damage our
reputation and expose us to a risk of loss or litigation. Experienced
programmers or "hackers" have successfully penetrated our system and we
expect that these attempts will continue to occur from time to time.
Because a hacker who is able to penetrate our network security could
misappropriate proprietary information or cause interruptions in our
products and services, we may have to expend significant capital and
resources to protect against or to alleviate problems caused by these
hackers. Additionally, we may not have a timely remedy against a hacker who
is able to penetrate our network security. Such security breaches could
materially adversely affect our company. In addition, the transmission of
computer viruses resulting from hackers or otherwise could expose us to
significant liability.
Our insurance policies carry low coverage limits, which may not be
adequate to reimburse us for losses caused by security breaches. We also
face risks associated with security breaches affecting third parties with
whom we have relationships.
COMPETITION FOR MEMBERS, USERS AND ADVERTISERS, AS WELL AS COMPETITION IN
THE ELECTRONIC COMMERCE MARKET IS INTENSE AND IS EXPECTED TO INCREASE
SIGNIFICANTLY.
The market for members, users and Internet advertising among web sites
is new and rapidly evolving. Competition for members, users and
advertisers, as well as competition in the electronic commerce market, is
intense and is expected to increase significantly. Barriers to entry are
relatively insubstantial and we believe we will face competitive pressures
from many additional companies both in the United States and abroad.
Accordingly, pricing pressure on advertising rates will increase in the
future which could have a material adverse effect on us. All types of web
sites compete for users. Competitor web sites include community sites, as
well as "gateway" or "portal" sites and various other types of web sites.
We believe that the principal competitive factors, in attracting users to a
site are:
o functionality of the web site,
o brand recognition,
o member affinity and loyalty,
o broad demographic focus,
o open access for visitors,
o critical mass of users, particularly for community-type sites,
and
o services for users.
We compete for users, advertisers and electronic commerce marketers
with the following types of companies:
o other online community web sites, such as GeoCities, which has
agreed to be acquired by Yahoo!, Tripod and AngelFire,
subsidiaries of Lycos, and Xoom.com,
o search engines and other Internet "portal" companies, such as
Excite, InfoSeek, Lycos and Yahoo!,
o online content web sites, such as CNET, ESPN.com and ZDNet.com,
o publishers and distributors of television, radio and print, such
as CBS, NBC and CNN/Time Warner,
o general purpose consumer online services, such as America Online
and Microsoft Network,
o web sites maintained by Internet service providers, such as AT&T
WorldNet, EarthLink and MindSpring, and
o electronic commerce web sites, such as Amazon.com, Etoys and
CDNow.
Additional competitive factors specific to attracting advertisers
include the ability to offer targeted audiences and the overall cost
effectiveness of the advertising medium we offer. We will also need to
continue to increase significantly our user base and traffic to compete
effectively.
Many of our competitors, including other community sites, have
announced that they are contemplating developing Internet navigation
services and are attempting to become "gateway" or "portal" sites through
which users may enter the web. In the event these companies develop
successful "portal" sites, we could lose a substantial portion of our user
traffic. Furthermore, many non-community sites are seeking to develop
community aspects in their sites.
Many of our existing and potential competitors, including companies
operating web directories and search engines, and traditional media
companies, have the following advantages:
o longer operating histories in the Internet market;
o greater name recognition;
o larger customer bases; and
o significantly greater financial, technical and marketing
resources.
In addition, providers of Internet tools and services, including
community-type sites, may be acquired by, receive investments from, or
enter into other commercial relationships with larger, well-established and
well-financed companies, such as Microsoft and America Online. For example,
Excite has agreed to be acquired by @Home, America Online acquired Netscape
and Lycos announced a transaction with USA Network and Ticketmaster
Citysearch Online. In addition, there has been other significant
consolidation in the industry. This consolidation may continue in the
future. We could face increased competition in the future from traditional
media companies, including cable, newspaper, magazine, television and radio
companies. A number of these large traditional media companies, including
Disney, CBS and NBC, have been active in Internet related activities. Those
competitors may be able to undertake more extensive marketing campaigns for
their brands and services, adopt more aggressive advertising pricing
policies and make more attractive offers to potential employees,
distribution partners, electronic commerce companies, advertisers and
third-party content providers. Furthermore, our existing and potential
competitors may develop sites that are equal or superior in quality to, or
that achieve greater market acceptance than, our site. We cannot assure you
that advertisers may not perceive our competitors' sites as more desirable
than ours.
To compete with other web sites, we plan to develop and introduce new
features and functions, such as increased capabilities for user
personalization and interactivity. We also plan to develop and introduce
new products and services, such as new content targeted for specific user
groups with particular demographic and geographic characteristics. These
improvements will require us to spend significant funds and may require the
development or licensing of increasingly complex technologies. Enhancements
of or improvements to our web site may contain undetected programming
errors that require significant design modifications, resulting in a loss
of customer confidence and user support and a decrease in the value of our
brand name. Our failure to effectively develop and produce new features,
functions, products and services could affect our ability to compete with
other web sites. This could have a material adverse effect on us.
Web browsers offered by Netscape and Microsoft also increasingly
incorporate prominent search buttons that direct traffic to competing
services. These features could make it more difficult for Internet users to
find and use our product and services. In the future, Netscape, Microsoft
and other browser suppliers may also more tightly integrate products and
services similar to ours into their browsers or their browsers' pre-set
home page. Additionally, entities that sponsor or maintain high-traffic web
sites or that provide an initial point of entry for Internet viewers, such
as the Regional Bell Operating Companies, cable companies or Internet
Service Providers, such as Microsoft and America Online, offer and can be
expected to consider further development, acquisition or licensing of
Internet search and navigation functions that compete with us. These
competitors could also take actions that make it more difficult for viewers
to find and use our products and services.
Additionally, the electronic commerce market is new and rapidly
evolving, and we expect competition among electronic commerce merchants to
increase significantly. Because the Internet allows consumers to easily
compare prices of similar products or services on competing web sites and
there are low barriers to entry for potential competitors, gross margins
for electronic commerce transactions may narrow in the future. Many of the
products that we sell on our web site may be sold by the maker of the
product directly or by other web sites. Competition among Internet
retailers, our electronic commerce partners and product makers may have a
material adverse effect on our ability to generate revenues through
electronic commerce transactions or from these electronic commerce
partners. See also "Business--Competition."
WE DEPEND ON THE CONTINUED GROWTH IN THE USE AND COMMERCIAL VIABILITY OF
THE WEB.
Our market is new and rapidly evolving. Our business is substantially
dependent upon the continued rapid growth in the use of the Internet and
electronic commerce on the Internet becoming more widespread. Commercial
use of the Internet is relatively new. Web usage may be inhibited for a
number of reasons, including:
o inadequate network infrastructure;
o security and authentication concerns with respect to transmission
over the Internet of confidential information, including credit
card numbers, or other personal information;
o ease of access;
o inconsistent quality of service;
o availability of cost-effective, high-speed service; and
o bandwidth availability.
If the Internet develops as a commercial medium more slowly than we
expect, it will adversely affect our business. Additionally, if web usage
grows, the Internet infrastructure may not be able to support the demands
placed on it by this growth or its performance and reliability may decline.
Web sites have experienced interruptions in their service as a result of
outages and other delays occurring throughout the Internet network
infrastructure. If these outages or delays frequently occur in the future,
web usage, as well as usage of our web site, could grow more slowly or
decline. Also, the Internet's commercial viability may be significantly
hampered due to:
o delays in the development or adoption of new operating and
technical standards and performance improvements required to
handle increased levels of activity,
o increased government regulation, and
o insufficient availability of telecommunications services which
could result in slower response times and adversely affect usage
of the Internet.
WE MAY BE MATERIALLY ADVERSELY AFFECTED IF ELECTRONIC COMMERCE DOES NOT
BECOME A VIABLE SOURCE OF SIGNIFICANT REVENUES FOR THEGLOBE.COM. IN
ADDITION, OUR ELECTRONIC COMMERCE BUSINESS MAY RESULT IN SIGNIFICANT
LIABILITY CLAIMS AGAINST US.
In the first quarter of 1999, we acquired Azazz, which is a direct
marketer of products over the Internet. However, we have limited experience
in the sale of products online and the development of relationships with
manufacturers and suppliers of these products. We also face many
uncertainties which may affect our ability to generate electronic commerce
revenues, including:
o our ability to obtain new customers at a reasonable cost, retain
existing customers and encourage repeat purchases;
o the likelihood that both online and retail purchasing trends may
rapidly change;
o the level of product returns;
o merchandise shipping costs and delivery times;
o our ability to manage inventory levels;
o our ability to secure and maintain relationships with vendors;
o the possibility that our vendors may sell their products through
other sites; and
o intense competition for electronic commerce revenues.
Accordingly, we cannot assure you that electronic commerce transactions
will provide a significant or sustainable source of revenues or profits.
Additionally, due to the ability of consumers to easily compare prices of
similar products or services on competing web sites, gross margins for
electronic commerce transactions may narrow in the future and, accordingly,
our revenues and profits from electronic commerce arrangements may be
materially negatively impacted. If use of the Internet for electronic
commerce does not continue to grow, our business and financial condition
would be materially and adversely affected.
Additionally, consumers may sue us if any of the products that we sell
are defective, fail to perform properly or injure the user. Some of our
agreements with manufacturers contain provisions intended to limit our
exposure to liability claims. However, these limitations may not prevent
all potential claims. Liability claims could require us to spend
significant time and money in litigation or to pay significant damages. As
a result, any claims, whether or not successful, could seriously damage our
reputation and our business.
INTERNET ADVERTISING MAY NOT PROVE AS EFFECTIVE AS TRADITIONAL MEDIA.
The Internet advertising market is new and rapidly evolving. We cannot
yet gauge its effectiveness as compared to traditional advertising media.
Many of our current or potential advertising partners have little or no
experience using the Internet for advertising purposes and they have
allocated only a limited portion of their advertising budgets to Internet
advertising. The adoption of Internet advertising, particularly by those
entities that have historically relied upon traditional media, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Advertisers that have traditionally
relied upon other advertising media may be reluctant to advertise on the
Internet or find it less effective.
No standards have been widely accepted to measure the effectiveness of
Internet advertising or to measure the demographics of our user base.
Additionally, no standards have been widely accepted to measure the number
of members, unique users or page views related to a particular site. We
cannot assure you that any standards will become available in the future or
that standards will accurately measure our users. If standards do not
develop, advertisers may not advertise on the Internet. In addition, we
depend on third parties to provide these measurement services. These
measurements are often based on sampling techniques or other imprecise
measures and may materially differ from our estimates. We cannot assure you
that advertisers will accept our or other parties' measurements. The
rejection by advertisers of these measurements could have a material
adverse effect on our business and financial condition.
The sale of Internet advertising is subject to intense competition
that has resulted in a wide variety of pricing models, rate quotes and
advertising services. This competition has resulted in a wide variety of
advertising pricing models. For example, advertising rates may be based on
the number of user requests for additional information made by clicking on
the advertisement, known as "click throughs," or on the number of times an
advertisement is displayed to a user, known as "impressions." Our contracts
with advertisers typically guarantee the advertiser a minimum number of
impressions. To the extent that minimum impression levels are not achieved
for any reason, including the failure to obtain the expected traffic, our
contracts with advertisers may require us to provide additional impressions
after the contract term, which may adversely affect the availability of our
advertising inventory. This could have a material adverse effect on us.
Our revenues could be materially adversely affected if we are unable
to adapt to other pricing models for Internet advertising if they are
adopted. It is difficult to predict which, if any, pricing models for
Internet advertising will emerge as the industry standard. This makes it
difficult to project our future advertising rates and revenues.
Additionally, it is possible that Internet access providers may, in the
future, act to block or limit various types of advertising or direct
solicitations, whether at their own behest or at the request of users.
Moreover, "filter" software programs that limit or prevent advertising from
being delivered to an Internet user's computer are available. Widespread
adoption of this software could adversely affect the commercial viability
of Internet advertising.
WE DEPEND ON THIRD PARTIES TO INCREASE TRAFFIC ON OUR SITE AND TO PROVIDE
SOFTWARE AND PRODUCTS.
We are dependent on various web sites that provide direct links to our
site. These web sites may not attract significant numbers of users and we
may not receive a significant number of additional users from these
relationships. We also enter into agreements with advertisers, electronic
commerce marketers or other third-party web sites that require us to
exclusively feature these parties in particular areas or on particular
pages of our site. These exclusivity agreements may limit our ability to
enter into other relationships. Our agreements with third party sites do
not require future minimum commitments to use our services or provide
access to our site and may be terminated at the convenience of the other
party. Moreover, we do not have agreements with a majority of the web sites
that provide links to our site. These sites may terminate their links at
any time. Many companies we may pursue for strategic relationships offer
competing services. As a result, these competitors may be reluctant to
enter into strategic relationships with us. Our business could be
materially adversely affected if we do not establish and maintain strategic
relationships on commercially reasonable terms or if any of our strategic
relationships do not result in increased traffic on our web site.
Additionally, we cannot assure you that we will be able to maintain
relationships with third parties that supply us with software or products
that are crucial to our success, or that these software or products will be
able to sustain any third-party claims or rights against their use.
Furthermore, we cannot assure you that the software, services or products
of those companies that provide access or links to our services or products
will achieve market acceptance or commercial success. Accordingly, we
cannot assure you that our existing relationships will result in sustained
business partnerships, successful service or product offerings or the
generation of significant revenues for us.
WE MAY NEED TO RAISE ADDITIONAL FUNDS, INCLUDING THROUGH THE ISSUANCE OF
DEBT.
We believe that our current cash and cash equivalents, which primarily
resulted from our initial public offering, together with cash flows, will
be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for our existing business for at least twelve months.
We expect that we will continue to experience negative operating cash flow
for the foreseeable future as a result of significant spending on
advertising and infrastructure. Accordingly, we may need to raise
additional funds in a timely manner in order to:
o fund our anticipated expansion;
o develop new or enhanced services or products;
o respond to competitive pressures;
o acquire complementary products, businesses or technologies; and
o enter into joint ventures.
If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders
will be reduced. Stockholders may experience additional dilution and these
securities may have rights senior to those of the holders of our common
stock. We do not have any contractual restrictions on our ability to incur
debt. Any indebtedness could contain covenants which restrict our
operations. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our business could be
materially adverse effected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
OUR ACQUISITIONS OR JOINT VENTURES ENTAIL NUMEROUS RISKS AND UNCERTAINTIES.
As part of our business strategy, we expect to review acquisition
prospects or joint ventures that would complement our existing business,
increase our traffic, augment the distribution of our community, enhance
our technological capabilities or increase our electronic commerce
revenues. On February 1, 1999, we acquired Azazz.com to develop electronic
commerce retailing on our site. We are currently in negotiations with third
parties for various transactions. These transactions may or may not be
consummated. Our future acquisitions or joint ventures could result in
numerous risks and uncertainties, including:
o potentially dilutive issuances of equity securities, which may be
freely tradable in the public market;
o large and immediate write-offs;
o the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets;
o difficulties in the assimilation of operations, personnel,
technologies, products and information systems of the acquired
companies;
o the diversion of management's attention from other business
concerns;
o the risks of entering geographic and business markets in which we
have no or limited prior experience such as e-commerce retailing;
and
o the risk that the acquired business will not perform as expected.
WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
We regard substantial elements of our web site and underlying
technology as proprietary and attempt to protect them by relying on
intellectual property laws and restrictions on disclosure. We also
generally enter into confidentiality agreements with our employees and
consultants. In connection with our license agreements with third parties
we generally seek to control access to and distribution of our technology
and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar
technology independently. Thus we cannot assure you that the steps taken by
us will prevent misappropriation or infringement of our proprietary
information which could have a material adverse effect on our business. In
addition, our competitors may independently develop similar technology,
duplicate our products or design around our intellectual property rights.
We pursue the registration of our trademarks in the United States and
internationally. However, effective trademark and other intellectual
property protection may not be available in every country in which our
services are distributed or made available through the Internet. Policing
unauthorized use of our proprietary information is difficult. Legal
standards relating to the validity, enforceability and scope of protection
of proprietary rights in Internet-related businesses are also uncertain and
still evolving. We cannot assure you about the future viability or value of
any of our proprietary rights.
Litigation may be necessary in the future to enforce our intellectual
property rights or to determine the validity and scope of the proprietary
rights of others. Furthermore, we cannot assure you that our business
activities will not infringe upon the proprietary rights of others, or that
other parties will not assert infringement claims against us, including
claims related to providing hyperlinks to web sites operated by third
parties or providing advertising on a keyword basis that links a specific
search term entered by a user to the appearance of a particular
advertisement. Moreover, from time to time, third parties may assert claims
of alleged infringement by us or our members of their intellectual property
rights. Any litigation claims or counterclaims could impair our business
because they could:
o be time-consuming;
o result in costly litigation;
o subject us to significant liability for damages;
o result in invalidation of our proprietary rights;
o divert management's attention;
o cause product release delays; or
o require us to redesign our products or require us to enter into
royalty or licensing agreements that may not be available on
terms acceptable to us, or at all.
We license from third parties various technologies incorporated into
our site. As we continue to introduce new services that incorporate new
technologies, we may be required to license additional technology from
others. We cannot assure you that these third-party technology licenses
will continue to be available to us on commercially reasonable terms.
Additionally, we cannot assure you that the third parties from which we
license our technology will be able to defend our proprietary rights
successfully against claims of infringement. As a result, our inability to
obtain any of these technology licenses could result in delays or
reductions in the introduction of new services or could adversely affect
the performance of our existing services until equivalent technology can be
identified, licensed and integrated.
We own the Internet domain names "theglobe.com", "shop.theglobe.com",
"tglo.com" and "azazz.com." The regulation of domain names in the United
States and in foreign countries may change. Regulatory bodies could
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names, any or all
of which may dilute the strength of our names. We may not acquire or
maintain the "theglobe.com," "shop.theglobe.com," "tglo.com" and
"azazz.com" domain names in all of the countries in which our web site may
be accessed, or for any or all of the top-level domain names that may be
introduced. The relationship between regulations governing domain names and
laws protecting proprietary rights is unclear. Therefore, we may not be
able to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our trademarks and other proprietary
rights. See "Business--Intellectual Property and Proprietary Rights."
WE MAY FACE INCREASED GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES IN OUR
INDUSTRY.
There are an increasing number of federal, state, local and foreign
laws and regulations pertaining to the Internet. In addition, a number of
federal, state, local and foreign legislative and regulatory proposals are
under consideration. Laws or regulations may be adopted with respect to the
Internet relating to liability for information retrieved from or
transmitted over the Internet, online content regulation, user privacy and
quality of products and services. Changes in tax laws relating to
electronic commerce could materially effect our business. Moreover, the
applicability to the Internet of existing laws governing issues such as
intellectual property ownership and infringement, copyright, trademark,
trade secret, obscenity, libel, employment and personal privacy is
uncertain and developing. Any new legislation or regulation, or the
application or interpretation of existing laws or regulations, may decrease
the growth in the use of the Internet, may impose additional burdens on
electronic commerce or may alter how we do business. This could decrease
the demand for our services, increase our cost of doing business, increase
the costs of products sold through the Internet or otherwise have a
material adverse effect on our business, results of operations and
financial condition. See "Business -- Government Regulation and Legal
Uncertainties."
WE MAY BE EXPOSED TO LIABILITY FOR INFORMATION RETRIEVED FROM OR
TRANSMITTED OVER THE INTERNET OR FOR PRODUCTS SOLD OVER THE INTERNET.
Users may access content on our web site or the web sites of our
distribution partners through web site links or other means, and they may
download content and subsequently transmit this content to others over the
Internet. This could result in claims against us based on a variety of
theories, including defamation, obscenity, negligence, copyright, trademark
infringement or the wrongful actions of third parties. Other theories may
be brought based on the nature, publication and distribution of our content
or based on errors or false or misleading information provided on our web
site. Claims have been brought against online services in the past and we
have received inquiries from third parties regarding these matters. The
claims could be material in the future. We could also be exposed to
liability for third party content posted by members on their personal web
pages or by users in our chat rooms or on our bulletin boards.
Additionally, we offer e-mail service, which a third party provides.
The e-mail service may expose us to potential liabilities or claims
resulting from unsolicited e-mail, lost or misdirected messages, fraudulent
use of e-mail or delays in e-mail service. We also enter into agreements
with commerce partners and sponsors under which we are entitled to receive
a share of any revenue from the purchase of goods and services through
direct links from our site. After the Azazz acquisition in February 1999,
we also began selling products directly to consumers. Those arrangements
may expose us to additional legal risks, regulations by local, state,
federal and foreign authorities and potential liabilities to consumers of
these products and services, even if we do not ourselves provide these
products or services. We cannot assure you that any indemnification
provided to us in our agreements with these parties will be adequate.
Even if these claims do not result in our liability, we could incur
significant costs in investigating and defending against these claims. The
imposition of potential liability for information carried on or
disseminated through our systems could require us to implement measures to
reduce our exposure to liability. Those measures may require the
expenditure of substantial resources and limit the attractiveness of our
services. Additionally, our insurance policies may not cover all potential
liabilities to which we are exposed.
WE MAY HAVE TROUBLE EXPANDING INTERNATIONALLY.
A part of our strategy is to expand into foreign markets. There can be
no assurance that the Internet or our community model will become widely
accepted for advertising and electronic commerce in any international
markets. To expand overseas we intend to seek to enter into relationships
with foreign business partners. This strategy contains risks, including:
o we may experience difficulty in managing international operations
because of distance, as well as language and cultural
differences;
o we or our future foreign business associates may not be able to
successfully market and operate our services in foreign markets;
o because of substantial anticipated competition, it will be
necessary to implement our business strategy quickly in
international markets to obtain a significant share of the
market; and
o we do not have the content or services necessary to substantially
expand our operations in many foreign markets.
We will unlikely be able to significantly penetrate these markets
unless we gain the relevant content, either through partnerships, other
business arrangements or possibly acquisitions with content-providers in
these markets. There are also risks inherent in doing business on an
international level, including:
o unexpected changes in regulatory requirements;
o trade barriers;
o difficulties in staffing and managing foreign operations;
o fluctuations in currency exchange rates and the introduction of
the euro;
o longer payment cycles in general;
o problems in collecting accounts receivable;
o difficulty in enforcing contracts;
o political and economic instability;
o seasonal reductions in business activity in certain other parts
of the world; and
o potentially adverse tax consequences.
VARIOUS STOCKHOLDERS, INDIVIDUALLY OR IN THE AGGREGATE, MAY CONTROL US.
Michael S. Egan, our Chairman, beneficially owns or controls, directly
or indirectly, 6,123,024 shares of our common stock which in the aggregate
represents approximately 47.8% of the outstanding shares of our common
stock. Todd V. Krizelman and Stephen J. Paternot, our Co-Chief Executive
Officers and Co-Presidents, collectively, beneficially own 15.2% of our
common stock.
Messrs. Egan, Krizelman, Paternot and Edward A. Cespedes and Rosalie
V. Arthur, each of whom is a director of our company, have entered into a
stockholders' agreement. As a result of the stockholders' agreement, Mr.
Egan has agreed to vote for up to two nominees of Messrs. Krizelman and
Paternot to the board of directors and Messrs. Krizelman and Paternot have
agreed to vote for the nominees of Mr. Egan to the board, which will be up
to five directors. Consequently, Mr. Egan, Krizelman and Paternot control
the ability to elect a majority of our directors. In addition, collectively
Messrs. Egan, Krizelman and Paternot have the ability to control the
outcome of all issues submitted to a vote of our stockholders requiring
majority approval. Additionally, each party other than Mr. Egan has granted
an irrevocable proxy with respect to all matters subject to a stockholder
vote to Dancing Bear Investments, Inc., an entity controlled by Mr. Egan,
for any shares held by that party received upon the exercise of outstanding
warrants for 225,000 shares of our common stock. The stockholders'
agreement also provides for tag-along and drag-along rights in connection
with any private sale of these securities.
THE YEAR 2000 ISSUE MAY AFFECT OUR OPERATIONS.
Year 2000 issues related to non-compliant information technology
systems or non-information technology systems operated by us or by third
parties may affect us. We have substantially completed an assessment of our
internal and external third-party information technology systems and
non-information technology systems and a test of the information technology
systems that support our web site. At this point in our assessment and
testing, we are not aware of any Year 2000 problems relating to systems
operated by us or by third parties that would have a material effect on our
business, without taking into account our efforts to avoid these problems.
Based on our assessment to date, we do not anticipate that costs associated
with remediating our non-compliant information technology systems or
non-information technology systems will be material, although we cannot
assure you that this will be the case. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Impact of the
Year 2000."
To the extent that we finalize our assessment without identifying any
material non-compliant information technology systems operated by us or by
third parties, the most reasonably likely worst case Year 2000 scenario is
the failure of one or more of our vendors of hardware or software or one or
more providers of non-information technology systems to properly identify
any Year 2000 compliance issues and remediate any issues before December
31, 1999. A failure could prevent us from operating our business, prevent
users from accessing our web site, or change the behavior of advertising
customers or persons accessing our web site. We believe that the primary
business risks, in the event of a failure, would include, but not be
limited to:
o lost advertising revenues;
o increased operating costs;
o loss of customers or persons accessing our web site;
o other business interruptions of a material nature; and
o claims of mismanagement, misrepresentation, or breach of
contract.
Any of these risks could have a material adverse effect on our business.
OUR STOCK PRICE IS VOLATILE.
The trading price of our common stock has been volatile and may
continue to be volatile in response to various factors, including:
o quarterly variations in our operating results;
o competitive announcements;
o changes in financial estimates by securities analysts;
o the operating and stock price performance of other companies that
investors may deem comparable to us; and
o news relating to trends in our markets.
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly
Internet-related companies, have been highly volatile. In the past,
following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against a company. Litigation, if instituted, whether or not successful,
could result in substantial costs and a diversion of management's attention
and resources, which would have a material adverse effect on our business.
THE SALE OF SHARES ELIGIBLE FOR FUTURE SALE IN THE OPEN MARKET COULD
DEPRESS OUR STOCK PRICE.
Sales of significant amounts of common stock in the public market in
the future or the perception that sales will occur could materially and
adversely affect the market price of the common stock or our future ability
to raise capital through an offering of our equity securities. There are
6,495,840 shares of common stock held by our stockholders that are
"restricted securities," as that term is defined in Rule 144 of the
Securities Act of 1933. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 under the Securities Act. In
connection with our initial public offering, all of our directors, officers
and the holders of a substantial portion of our stock agreed, with
exceptions, that they will not sell any common stock without the prior
consent of Bear, Stearns & Co. Inc. before May 12, 1999. Following this
date, approximately 1,133,380 shares of the restricted securities will be
immediately eligible for sale in the public market under Rule 144 without
volume limitation or further registration under the Securities Act, not
including approximately 5,362,460 shares held by our "affiliates", within
the meaning of the Securities Act. These 5,362,640 shares will be eligible
for public sale subject to volume limitation.
There are outstanding options to purchase 1,711,843 shares of common
stock which are eligible for sale in the public market from time to time
depending on vesting and the expiration of lock-up agreements. The issuance
of these securities are registered under the Securities Act. In addition,
there are outstanding warrants to purchase up to 2,023,009 shares of our
common stock upon exercise. Substantially all of our stockholders holding
restricted securities, including shares issuable upon the exercise of
warrants to purchase our common stock, are entitled to registration rights
under various conditions.
In the near future we intend to file a Form S-8 registration statement
under the Securities Act to register 41,017 shares of common stock issuable
upon the exercise of options assumed in connection with the acquisition of
Azazz. The registration statement is expected to become effective
immediately upon filing and shares covered by that registration statement
will be eligible for sale in the public markets. We also intend to file a
registration statement for the 343,916 shares of common stock issued to
acquire Azazz pursuant to a registration rights agreement.
ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF
CONTROL.
Provisions of our charter, by-laws and stockholder rights plan and
provisions of applicable Delaware law may discourage, delay or prevent a
merger or other change of control that a stockholder may consider
favorable. Our board of directors has the authority to issue up to three
million additional shares of preferred stock and to determine the price and
the terms, including preferences and voting rights, of those shares without
stockholder approval. Although we have no current plans to issue additional
shares of our preferred stock, any issuance could:
o have the effect of delaying, deferring or preventing a change in
control of our company;
o discourage bids of our common stock at a premium over the market
price; or
o adversely affect the market price of, and the voting and other
rights of the holders of, our common stock.
We must follow Delaware laws that could have the effect of delaying,
deterring or preventing a change in control of our company. One of these
laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless various conditions are met. In
addition, provisions of our charter and by-laws, and the significant amount
of common stock held by our executive officers, directors and affiliates,
could together have the effect of discouraging potential takeover attempts
or making it more difficult for stockholders to change management.
WE DO NOT EXPECT TO PAY CASH DIVIDENDS.
We do not anticipate paying any cash dividends in the foreseeable
future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS PAGE
Independent Auditors' Report 41
Balance Sheets as of December 31, 1998 and 1997 42
Statements of Operations for each of the three
years in the period ended December 31, 1998 43
Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 1998 44
Statements of Cash Flows for each of the three years
in the period ended December 31, 1998 45
Notes to Financial Statements 46
Financial Statement Schedules:
II - Valuation and Qualifying Accounts
for each of the three years in the
period ended December 31, 1998 Exhibit 99.1
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or Notes
thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
theglobe.com, inc.:
We have audited the accompanying balance sheets of theglobe.com, inc.
as of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. In connection with our audits of the
financial statements, we also have audited the financial statement schedule
as listed in the accompanying index. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of theglobe.com,
inc. as of December 31, 1998 and 1997, and the results of its operations
and cash flows for each of the years in the three-year period ended
December 31, 1998 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all respects, the information set forth therein.
/s/ KPMG LLP
New York, New York
February 20, 1999
<TABLE>
<CAPTION>
THEGLOBE.COM, INC.
BALANCE SHEETS
DECEMBER 31,
------------------------
1998 1997
------------ -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.................................... $29,250,572 $5,871,291
Short-term investments....................................... 898,546 13,003,173
Accounts receivable, less allowance for doubtful accounts of
$300,136 and $12,000 in 1998 and 1997, respectively........ 2,004,875 254,209
Prepaids and other current assets............................ 678,831 --
------------ -----------
Total current assets..................................... 32,832,824 19,128,673
Property and equipment, net...................................... 3,562,559 325,842
Restricted investments........................................... 1,734,495 --
Other assets..................................................... -- 7,657
------------ -----------
Total assets............................................. $38,129,878 $19,462,172
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 2,614,445 $ 396,380
Accrued expense.............................................. 817,463 325,454
Accrued compensation......................................... 691,279 1,148,999
Deferred revenue............................................. 673,616 113,290
Current installments of obligations under capital leases..... 1,026,728 27,174
------------ -----------
Total current liabilities................................ 5,823,531 2,011,297
Obligations under capital leases, excluding current installments. 2,005,724 98,826
Stockholders' equity:
Preferred Stock, 3,000,000 shares authorized:
Convertible preferred stock, Series A through E, $0.001 par
value; 2,900,001 shares authorized; -0- and 1,449,995.5,
shares issued and outstanding at December 31, 1998 and 1997,
respectively; aggregate liquidation preference of -0- and
$21,886,110 at December 31, 1998 and 1997, respectively........ -- 1,450
Common stock, $0.001 par value; 100,000,000 shares authorized;
10,312,256 and 1,154,271 shares issued and outstanding at
December 31, 1998 and 1997 respectively........................ 10,312 1,154
Additional paid-in capital....................................... 50,914,494 21,866,965
Deferred compensation............................................ (128,251) (76,033)
Net unrealized loss on securities................................ (50,006) (41,201)
Accumulated deficit.............................................. (20,445,926) (4,400,286)
------------ -----------
Total stockholders' equity............................... 30,300,623 17,352,049
Commitments...................................................... ------------ -----------
Total liabilities and stockholders' equity............... $38,129,878 $19,462,172
============ ===========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THEGLOBE.COM, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenues........................................ $ 5,509,818 $ 770,293 $ 229,363
Cost of revenues................................ 2,238,871 423,706 116,780
------------ ------------ -----------
Gross profit............................ 3,270,947 346,587 112,583
Operating expenses:
Sales and marketing......................... 9,298,683 1,248,349 275,947
Product development......................... 2,632,613 153,667 120,000
General and administrative.................. 6,828,134 2,827,591 489,073
Non-recurring charge........................ 1,370,250 -- --
------------ ------------ -----------
Loss from operations.................... (16,858,733) (3,883,020) (772,437)
------------ ------------ -----------
Other income (expense):
Interest and dividend income................ 1,083,400 334,720 25,966
Interest and other expense.................. (191,389) -- (3,709)
------------ ------------ -----------
Total other income (expense), net....... 892,011 334,720 22,257
------------ ------------ -----------
Loss before provision for income taxes.. (15,966,722) (3,548,300) (750,180)
------------ ------------ -----------
Provision for income taxes...................... 78,918 36,100 --
------------ ------------ -----------
Net loss................................ $(16,045,640) $(3,584,400) $(750,180)
============ ============ ===========
Basic and diluted net loss per share............ $ (6.74) $ (3.13) $ (0.67)
============ ============ ===========
Weighted average basic and diluted shares
outstanding.................................... 2,381,140 1,146,773 1,125,000
============ ============ ===========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THEGLOBE.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL OTHER TOTAL
CONVERTIBLE PAID-IN DEFERRED COMPENSATION ACCUMULATED STOCKHODLERS'
PREFERRED STOCK COMMON STOCK CAPITAL COMPENSATION LOSS DEFICIT EQUITY
----------------------- ---------------------- ---------- ------------ ------------ ----------- -------------
SHARES AMOUNTS SHARES AMOUNTS
------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1995.. 1,134,910 $1,135 1,125,000 $1,125 $695,163 $ -- $ -- $(65,706) $631,717
Net loss............. -- -- -- -- -- -- -- (750,180) (750,180)
-------------
Comprehensive loss... (750,180)
-------------
Issuance of Series B
convertible
preferred stock.... 23,810 24 -- -- 24,961 -- -- -- 24,985
Issuance of Series C
convertible
preferred stock.... 221,250 221 -- -- 884,749 -- -- -- 884,970
Deferred compensation -- -- -- -- 25,053 (25,053) -- -- --
Amortization of
deferred
compensation....... -- -- -- -- -- 4,000 -- -- 4,000
----------- ----------- ----------- ---------- ---------- ------------ ------------ ----------- -------------
Balance at December
31, 1996........... 1,379,970 1,380 1,125,000 1,125 1,629,926 (21,053) -- (815,886) 795,492
Net loss............. -- -- -- -- -- -- -- (3,584,400) (3,584,400)
Net unrealized loss
on securities...... -- -- -- -- -- -- (41,201) -- (41,201)
-------------
Comprehensive loss... (3,625,601)
Issuance of Series C
convertible
preferred stock.... 70,000 70 -- -- 279,930 -- -- -- 280,000
Exercise of stock
options............ -- -- 29,271 29 4,478 -- -- -- 4,507
Issuance of Series D
convertible
preferred stock,
net of expense of
$130,464........... 25.5 -- -- -- 19,869,536 -- -- -- 19,869,536
Deferred compensation -- -- -- -- 83,095 (83,095) -- -- --
Amortization of
deferred
compensation....... -- -- -- -- -- 28,115 -- -- 28,115
----------- ----------- ----------- ---------- ---------- ------------ ------------ ----------- -------------
Balance at
December 31, 1997.. 1,449,995.5 1,450 1,154,271 1,154 21,866,965 (76,033) (41,201) (4,400,286) 17,352,049
Net loss............. -- -- -- -- -- -- -- (16,045,640) (16,045,640)
Change in net
unrealized loss on
securities......... -- -- -- -- -- -- (8,805) -- (8,805)
-------------
Comprehensive loss... (16,054,445)
-------------
Deferred compensation -- -- -- -- 118,125 (118,125) -- -- --
Amortization of
deferred
compensation....... -- -- -- -- -- 65,907 -- -- 65,907
Exercise of stock
options............ -- -- 199,083 199 254,818 -- -- -- 255,017
Conversion of
preferred stock in
connection with the
Company's IPO...... (1,449,995) (1,450) 5,473,735 5,474 (4,024) -- -- -- --
Issuance of Common
Stock in connection
for services....... -- -- 3,500 3 31,497 -- -- -- 31,500
Issuance of common
stock in connection
with the Company's
IPO, net of
issuance costs of
$4,054,658......... -- -- 3,481,667 3,482 27,276,863 -- -- -- 27,280,345
Transfer of warrants
from significant
shareholder to
officers........... -- -- -- -- 1,370,250 -- -- -- 1,370,250
----------- ----------- ----------- ---------- ---------- ------------ ------------ ----------- -------------
Balance at
December 31, 1998 -- $ -- 10,312,256 $10,312 $50,914,494 $(128,251) $(50,006)$(20,445,926) $30,300,623
=========== =========== =========== ========== ========== ============ ============ =========== =============
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THEGLOBE.COM, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (16,045,640) $(3,584,400) $(750,180)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 715,410 60,210 47,595
Transfer of stock warrants from significant
shareholder to officers.................. 1,370,250 -- --
Issuance of common stock for services...... 31,500 -- --
Amortization of deferred compensation...... 65,907 28,115 4,000
Changes in operating assets and liabilities:
Accounts receivable, net................... (1,750,666) (188,081) (63,103)
Prepaids and other current assets.......... (678,831) 2,377 (2,377)
Other assets............................... 7,657 -- --
Accounts payable........................... 2,218,065 265,902 120,684
Accrued expenses........................... 492,009 310,220 9,635
Accrued compensation....................... (457,720) 1,148,999 --
Deferred revenue........................... 560,326 81,146 32,144
-------------- ------------ -------------
Net cash used in operating activities........ (13,471,733) (1,875,512) (601,602)
-------------- ------------ -------------
Cash flows from investing activities:
Purchase of securities......................... -- (13,044,374) --
Proceeds from sale of securities............... 12,095,822 -- --
Purchases of property and equipment............ (730,359) (119,984) (138,309)
Payment of security deposits................... (1,734,495) -- --
-------------- ------------ -------------
Net cash provided by (used in) investing
activities................................. 9,630,968 (13,164,358) (138,309)
-------------- ------------ -------------
Cash flows from financing activities:
Payments under capital lease obligations....... (315,316) -- --
Proceeds from exercise of common stock options. 255,017 4,507 --
Net proceeds from issuance of common stock..... 27,280,345 -- --
Payment of financing costs..................... -- (130,464) --
Proceeds from issuance of convertible preferred
Series A, B and C stock...................... -- 280,000 909,955
Proceeds from issuance of convertible preferred
Series D stock............................... -- 20,000,000 --
-------------- ------------ -------------
Net cash provided by financing activities.. 27,220,046 20,154,043 909,955
-------------- ------------ -------------
Net change in cash and cash equivalents.... 23,379,281 5,114,173 170,044
Cash and cash equivalents at beginning of period. 5,871,291 757,118 587,074
-------------- ------------ -------------
Cash and cash equivalents at end of period....... $29,250,572 $5,871,291 $ 757,118
============== ============ ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest..................................... $ 123,724 $ -- $ 3,709
============== ============ ==============
Income taxes................................. $ 69,890 $ -- $ --
============== ============ ==============
Supplemental disclosure of noncash transactions:
Equipment acquired under capital leases........ $3,221,769 $ 126,000 $ --
============== ============ ==============
See accompanying notes to financial statements.
</TABLE>
THEGLOBE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
theglobe.com, inc. (the "Company") was incorporated on May 1, 1995
(inception) and commenced operations on that date. theglobe.com is an
online community with members and users in the United States and abroad.
theglobe.com's users are able to personalize their online experience by
publishing their own content and interacting with others having similar
interests. The Company's primary revenue source is the sale of advertising,
with additional revenues generated through electronic commerce
arrangements, development fees and the sale of membership service fees for
enhanced services.
The Company's business is characterized by rapid technological change,
new product development and evolving industry standards. Inherent in the
Company's business are various risks and uncertainties, including its
limited operating history, unproven business model and the limited history
of commerce on the Internet. The Company's success may depend in part upon
the emergence of the Internet as a communications medium, prospective
product development efforts and the acceptance of the Company's solutions
by the marketplace.
(b) Initial Public Offerings
On November 13, 1998, the Company completed an initial public offering
and concurrent offering directly to certain investors in which it sold
3,481,667 shares of Common Stock, including 381,667 shares in connection
with the exercise of the underwriters' over-allotment option, at $9.00 per
share. Upon the closing of the offerings, all of the Company's preferred
stock, par value $0.001 per share (the "Preferred Stock") automatically
converted into an aggregate of 5,473,735 shares of Common Stock. Net
proceeds from the offerings, after underwriting and placement agent fees of
$2.0 million and offering costs of $2.0 million were $27.3 million.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(d) Cash and Cash Equivalents
The Company considers all highly liquid securities with original
maturities of three months or less to be cash equivalents. Cash equivalents
at December 31, 1998 were approximately $2,955,044 and at December 31, 1997
were approximately $3,997,000, which consisted of corporate bonds and
mutual funds.
(e) Short-term Investments
Short-term investments are classified as available-for-sale and are
available to support current operations or to take advantage of other
investment opportunities. These investments are corporate bonds, commercial
paper and corporate bond funds which are stated at their estimated fair
value based upon publicly available market quotes. Unrealized gains and
losses are computed on the basis of specific identification and are
included in stockholders' equity. Realized gains, realized losses and
declines in value, judged to be other-than-temporary, are included in other
income. There were no material gross realized gains or losses from sales of
securities in the periods presented. The costs of securities sold are based
on the specific-identification method and interest earned is included in
interest income. As of December 31, 1998, the Company had gross unrealized
losses of $50,006 from its short-term investments. As of December 31, 1997,
the Company had gross unrealized losses of $41,678 and gross unrealized
gains of $477 from its short-term investments.
(f) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
related assets, generally ranging from three to five years. Equipment under
capital leases is stated at the present value of minimum lease payments and
is amortized using the straight-line method over the shorter of the lease
term or the estimated useful lives of the assets.
(g) Restricted Investments
At December 31, 1998, restricted investments included security
deposits held in certificates of deposit and other interest bearing
accounts as collateral for certain capital lease equipment and office space
leases.
(h) Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. To date, no such impairment has been recorded.
(i) Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases for operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in results of operations in the period that the tax change
occurs. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
(j) Revenue Recognition
The Company's revenues are derived principally from the sale of banner
advertisements under short-term contracts. To date, the duration of the
Company's advertising commitments has generally averaged from one to three
months. Advertising revenues are recognized ratably in the period in which
the advertisement is displayed, provided that no significant Company
obligations remain and collection of the resulting receivable is probable.
Company obligations typically include the guarantee of a minimum number of
"impressions" or times that an advertisement appears in pages viewed by the
users of the Company's online properties.
The Company also derived other revenues from its membership service
fees, electronic commerce revenue shares and sponsorship placements within
the Company's site. Membership service fees are deferred and recognized
ratably over the term of the subscription period. Revenues from the
Company's share of proceeds from its electronic commerce partner's sales
are recognized upon notification from its partners of sales attributable to
the Company's site. The Company also earns additional revenue on
sponsorship contracts for fees relating to the design, coordination, and
integration of the customer's content and links. These development fees are
recognized as revenue once the related activities have been performed.
Other revenues accounted for 11% of revenues for the year ended December
31, 1998, 23% for 1997 and 5% for 1996.
The Company trades advertisements on its web properties in exchange
for advertisements on the Internet sites of other companies. Barter
revenues and expenses are recorded at the fair market value of services
provided or received, whichever is more determinable in the circumstances.
Revenue from barter transactions is recognized as income when
advertisements are delivered on the Company's web properties. Barter
expense is recognized when the Company's advertisements are run on other
companies' web sites, which is typically in the same period when the barter
revenue is recognized. Barter revenues and expenses were approximately
$103,000 for the year ended December 31, 1998, $166,500 for 1997 and $-0-
for 1996.
(k) Product Development
Product development expenses include professional fees, staff costs
and related expenses associated with the development, testing and upgrades
to the Company's web site as well as expenses related to its editorial
content and community management and support. Product development costs and
enhancements to existing products are charged to operations as incurred. To
date, completion of a working model of the Company's products and general
release have substantially coincided. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.
(l) Advertising
Advertising costs are expensed as incurred. Advertising costs totaling
$7.3 million for the year ended December 31, 1998, $1,057,606 for 1997 and
$202,986 for 1996, are included in sales and marketing expenses in the
Company's statements of operations.
(m) Stock-Based Compensation
The Company has adopted Statement of Financial Accounting Standard
("SFAS") No. 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to continue to apply the provisions of Accounting Principle
Board ("APB") Opinion No. 25 and provide pro forma net earnings disclosures
for employee stock option grants if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(n) Net Loss Per Common Share
The Company adopted SFAS No. 128, "Computation of Earnings Per Share,"
during the year ended December 31, 1997. In accordance with SFAS No. 128
and the SEC Staff Accounting Bulletin No. 98, basic earnings per share are
computed using the weighted average number of common shares outstanding
during the period. Common equivalent shares consist of the incremental
common shares issuable upon the conversion of the Convertible Preferred
Stock (using the if-converted method) and shares issuable upon the exercise
of stock options and warrants (using the Treasury Stock method); common
equivalent shares are excluded from the calculation if their effect is
anti-dilutive. Pursuant to SEC Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock issued for nominal consideration,
prior to the anticipated effective date of an IPO, are required to be
included in the calculation of basic and diluted net loss per share, as if
they were outstanding for all periods presented. To date, the Company has
not had any issuances or grants for nominal consideration.
Diluted loss per share has not been presented separately, as the
outstanding stock options, warrants and contingent stock purchase warrants
are anti-dilutive for each of the periods presented.
Diluted net loss per common share for the year ended December 31,
1998, 1997 and 1996 does not include the effects of options to purchase
1,415,121, 721,979 and 342,049 shares of common stock, respectively;
2,023,009, 1,761,366 and -0- common stock warrants, respectively; and -0-,
4,953,327 and 1,379,970 shares of convertible preferred stock on an "as if"
converted basis, respectively.
(o) Fair Value of Financial Instruments
The carrying amount of certain of the Company's financial instruments,
including cash, short-term investment, accounts receivable, accounts
payable and accrued expenses, approximate fair value because of their short
maturities. The carrying amount of the Company's capital lease obligations
approximate the fair value of such instruments based upon the implicit
interest rate of the leases.
(p) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 130, "Reporting Comprehensive Income." This statement
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
Comprehensive income generally represents all changes in shareholders'
equity during the period except those resulting from investments by, or
distributions to, shareholders. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of earlier
periods presented. We adopted SFAS 130 as of December 31, 1997 and have
presented comprehensive income for all periods presented in the Statement
of Shareholders' Equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of and Enterprise and Related Information." SFAS No. 131
establishes standards for the way that a public enterprise reports
information about operating segments in annual financial statements, and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997 and
requires statement of earlier periods presented. The Company has determined
that it does not have any separately reporting business segments.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Corporate Software Developed or Obtained for Internal Use", which
establishes guidelines for the accounting for the costs of all computer
software developed or obtained for internal use. We adopted SOP 98-1
effective for the year ended December 31, 1998. The adoption of SOP 98-1 is
not expected to have a material impact on our financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. This statement does not apply to the Company as the
Company currently does not have any derivative instruments or hedging
activities.
(q) Stock Split
In May 1996, the Company authorized and implemented a ten-for-one
common stock split. In August 1997, the Company authorized and implemented
an additional ten-for-one preferred stock split. In September 1998, the
Company authorized a one-for-two reverse stock split of all common and
preferred stock. All share and per share information in the accompanying
financial statements has been retroactively restated to reflect the effect
of the stock splits and the reverse stock split.
(2) CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments and trade accounts receivable. The Company invests its cash and
cash equivalents among a diverse group of issuers and instruments. The
Company performs periodic evaluations of these investments. From time to
time, the Company's cash balances with any one financial institution may
exceed Federal Deposit Insurance Corporation insurance limits.
The Company's customers are concentrated in the United States. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral and establishes an
allowance for doubtful accounts based upon factors surrounding the credit
risk of customers, historical trends and other information; to date, such
losses have been within management's expectations.
For the year ended December 31, 1998, there were no customers that
accounted for over 10% of revenues generated by the Company, or of accounts
receivable at December 31, 1998.
For the year ended December 31, 1997, there were no customers that
accounted for over 10% of revenues generated by the Company or of accounts
receivable at December 31, 1997.
For the year ended December 31, 1996, one customer accounted for
approximately 71% of total revenues generated by the Company and 90% of
accounts receivable at December 31, 1996.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Computer equipment, including assets under capital leases of
$3,305,598, and $126,000, respectively........................ $4,298,702 $ 421,164
Furniture and fixtures, including assets under capital leases of
$42,171, and $-0-, respectively............................... 88,819 14,230
---------- ---------
4,387,521 435,394
Less accumulated depreciation and amortization, including
amounts related to assets under capital leases of $460,988 and
$-0-, respectively............................................ 824,962 109,552
---------- ---------
Total....................................................... $3,562,559 $ 325,842
========== =========
</TABLE>
(4) INCOME TAXES
Income taxes for the year ended December 31, 1998 and 1997 are based
solely on state and local taxes on business and investment capital. The
Company did not incur any income taxes for the year ended December 31,
1996.
The difference between the provision for income taxes computed at the
statutory rate and the reported amount of tax expense (benefit)
attributable to income before income taxes for the years ended December 31,
1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Tax benefit at statutory rates................... $(5,588,353) $(1,218,695) $(257,781)
Increase (reduction) in income taxes resulting
from:
State and local income taxes, net of Federal
income tax benefit......................... (1,665,150) (458,817) (45,131)
Meals and entertainment...................... 13,521 3,266 268
Other, net................................... (44,324) -- --
Valuation allowance adjustment............... 7,363,224 1,710,346 302,644
--------- --------- -------
$ 78,918 $ 36,100 $ --
========= ========= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below.
1998 1997
Deferred tax assets:
Net operating loss carryforwards........... $13,411,724 $2,018,635
Allowance for doubtful accounts............ 138,063 5,520
Depreciation............................... (27,600) --
Issuance of warrants....................... 630,315 --
Deferred compensation...................... 45,090 14,773
Other...................................... 96,600 --
----------- ----------
Total gross deferred tax assets........ 14,294,192 2,038,928
Less valuation allowance....................... (14,294,192) (2,038,928)
----------- ----------
Net deferred tax assets................ $ -- $ --
=========== ==========
Because of the Company's lack of earnings history, the deferred tax
assets have been fully offset by a valuation allowance. The valuation
allowance for deferred tax assets as of December 31, 1998 was $14,294,192
and as of December 31, 1997 was $2,038,928. The net change in the total
valuation allowance for the year ended December 31, 1998 was $12,255,264
and $1,710,346 for 1997. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and
tax planning strategies in making this assessment. Of the total valuation
allowance of $14,294,192, subsequently recognized tax benefits, if any, in
the amount of $4,892,040 will be applied directly to contributed capital.
At December 31, 1998, the Company had net operating loss carryforwards
available for federal and state income tax purposes of $29.2 million. These
carryforwards expire through 2018 for federal purposes and state purposes.
Under Section 382 of the Internal Revenue Code of 1986, as amended
(the "Code"), the utilization of net operating loss carryforwards may be
limited under the change in stock ownership rules of the Code. As a result
of ownership changes which occurred in August 1997, the Company's operating
tax loss carryforwards and tax credit carryforwards are subject to these
limitations.
(5) CAPITALIZATION
Authorized Shares
In July 1998, the Company amended and restated its certificate of
incorporation. As a result, the total number of shares which the Company is
authorized to issue is 103,000,000 shares: 100,000,000 of these shares are
Common Stock, each having a par value of $0.001; and 3,000,000 shares are
Preferred Stock, each having a par value of $0.001.
Common Stock
The Company issued 199,083 and 29,271 shares of Common Stock in
connection with the exercise of certain stock options in 1998 and 1997,
respectively. In November 1998, the Company issued 3,481,667 shares of
Common Stock in connection with its initial public offering and concurrent
offering. Upon consummation of the offerings, all of the Company's
outstanding Preferred Stock was converted into 5,473,735 shares of Common
Stock.
Convertible Preferred Stock
As of December 31, 1997, the Company had five series of Convertible
Preferred Stock (collectively "Preferred Stock") authorized and of which
only four of the series were outstanding. The holders of the various series
of Preferred Stock generally have the same rights and privileges. Each
class of the Company's Preferred Stock is convertible into Common Stock, as
defined below, and has rights and preferences which are generally more
senior to the Company's Common Stock and are more fully described in the
Company's amended and restated certificate of incorporation.
In 1996, the Company completed a private placement of 221,250 shares
of Series C Preferred Stock at $4.00 per share for an aggregate price of
approximately $885,000, paid in cash.
In April 1997, the Company amended the Series C Preferred Stock
agreement in order to extend the above private placement of Series C
Preferred Stock to April 15, 1997. In connection with this private
placement, the Company issued an additional 70,000 shares of Series C
Preferred Stock at $4.00 per share for an aggregate price of $280,000 in
1997.
In August 1997, the Company authorized and issued 25.5 shares of
Series D Preferred Stock for an aggregate cash amount of $20,000,000 in
connection with the investment by Dancing Bear Investments, Inc., an entity
controlled by the Chairman, which holds a majority interest in the Company.
These shares constituted 51% of the fully diluted capital stock of the
Company at the time of exercise, as defined. In addition to the Series D
Preferred Stock, Dancing Bear Investments, Inc. also received warrants
which provided the right to purchase up to 5 shares of Series E Preferred
Stock representing 10% of the fully diluted capital stock of the Company at
the time of exercise for an aggregate purchase price of $5,882,353, if
exercised in total. In connection with the Dancing Bear investment, two
officers and shareholders of the Company received $500,000 each as signing
bonuses in connection with their employment agreements. Such amounts were
accrued for at that time and were subsequently paid in the first quarter of
1998.
The conversion rate of the Series A, B and C Preferred Stock, as
defined in the original private placement agreements was the quotient
obtained by dividing the applicable series' original issue price by the
applicable series' conversion price. The original issue price and
conversion price was $0.20 per share for Series A, $1.05 per share for
Series B and $4 per share for Series C, as determined by negotiations among
the parties. Each share of Series D and E Preferred Stock was convertible
into an amount of common representing 1% of the fully diluted capital
stock, as defined in the original private placement agreement. Such
conversion features were determined by negotiations among the parties.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, as defined, on a pari passu basis, an amount
equal to $0.20 per share for Series A, $1.05 per share for Series B, $4 per
share for Series C, $784,314 per share for Series D and $1,176,471 per
share for Series E, would be paid out of the assets of the Company
available for distribution before any such payments would be made on any
shares of the Company's common shares or any other capital stock of the
Company other than the Preferred Stock, plus any declared but unpaid
dividends.
Upon consummation of the offerings, all of the Company's outstanding
Preferred Stock was converted into 5,473,735 shares of Common Stock.
The following table summarizes the Convertible Preferred Stock
authorized, issued and outstanding and liquidation preferences:
<TABLE>
<CAPTION>
PREFERRED SHARES EQUIVALENT SHARES OF
ISSUED AND OUTSTANDING COMMON STOCK
--------------------------------------- --------------------------
SHARES
AUTHORIZED 1998 1997 1998 1997
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Series A........................... 1,165,990 -- 582,995 -- 582,995
Series B........................... 1,151,450 -- 575,725 -- 575,725
Series C........................... 582,500 -- 291,250 -- 291,250
Series D........................... 51 -- 25.5 -- 3,503,357
Series E........................... 10 -- -- 2,023,009 1,761,366
------------ ------------ ------------- ------------ -------------
2,900,001 -- 1,449,995.5 2,023,009 6,714,693
============ ============ ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
LIQUIDATION
PREFERENCE LIQUIDATION PREFERENCE
PER ---------------------------
SHARE 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Series A......................................... $ 0.20 -- 116,599
Series B......................................... $ 1.05 -- 604,511
Series C......................................... $ 4.00 -- 1,165,000
Series D......................................... $ 784,313.72 -- 20,000,000
Series E......................................... $1,176,470.60 -- --
------------ ------------- -------------
-- 21,886,110
============= =============
</TABLE>
The number of common shares that the outstanding Series E Warrants are
convertible into upon exercise became fixed as a result of the consummation
of the offerings at 2,023,009 shares. These warrants are immediately
exercisable at approximately $2.91 per share.
(6) NON-RECURRING CHARGE
The Company recorded a non-cash, non-recurring charge of $1,370,250 to
earnings in the third quarter of 1998 in connection with the transfer of
Series E Warrants to acquire 225,000 shares of Common Stock by Dancing Bear
Investments, Inc. (the Company's principal shareholder at the date of
transfer) to certain officers of the Company, at an exercise price of
approximately $2.91 per share. The Company accounted for such transaction
as if it were a compensatory plan adopted by the Company. Accordingly, such
amount was recorded as a non-cash, non-recurring compensation expense in
the Company's statement of operation for services provided by such officers
to the Company with an offsetting increase to additional paid-in capital.
The amount of such non-cash charge was based on the difference between the
fair market value at the time of the transfer ($9 per share) and the
exercise price per warrant of approximately $2.91 per share.
(7) STOCK OPTION PLAN
During 1995, the Company established the 1995 Stock Option Plan, which
was amended (the "Amended Plan") by the Board of Directors in December
1996. Under the Amended Plan, the Board of Directors may issue incentive
stock options or nonqualified stock options to purchase up to 666,000
common shares. Incentive stock options must be granted at the fair market
value of the Company's Common Stock at the date the option is issued.
Nonqualified stock options may be granted to officers, directors,
other employees, consultants and advisors of the Company. The option price
for nonqualified stock options shall be at least 85% of the fair market
value of the Company's Common Stock. The granted options under the amended
plan shall be for periods not to exceed ten years. Incentive options
granted to stockholders who own greater than 10% of the total combined
voting power of all classes of stock of the Company must be issued at 110%
of the fair market value of the stock on the date the options are granted.
In connection with the Dancing Bear Investments investment, the
Company reserved an additional 125,000 shares of its common stock for
issuance upon the exercise of options to be granted in the future under the
Amended Plan.
In July 1998, the Company's 1998 Stock Option Plan (the "1998 Plan")
was adopted by the Board of Directors and approved by the stockholders of
the Company. The 1998 Plan authorized the issuance of 1,200,000 shares of
Common Stock, subject to adjustment as provided in the 1998 Plan. The 1998
Plan provides for the grant of "incentive stock options" intended to
qualify under Section 422 of the Code and stock options which do not so
qualify. The granting of incentive stock options is subject to limitation
as set forth in the 1998 Plan. Directors, officers, employees and
consultants of the Company and its subsidiaries are eligible to receive
grants under the 1998 Plan.
The per share weighted-average fair value of stock options granted
during 1998, 1997 and 1996 was $8.03, $0.32 and $0.16, respectively, on the
date of grant using the option-pricing method with the following
weighted-average assumptions: 1996--risk-free interest rate 6.18%, and an
expected life of two years; 1997--risk-free interest rate 6.00%, and an
expected life of three years; 1998--risk-free interest rate 5.00%, and an
expected life of four years, and a volatility of 150%. As permitted under
the provisions of SFAS No. 123, and based on the historical lack of a
public market for the Company's units, no factor for volatility has been
reflected in the option pricing calculation for 1997 and 1996.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, compensation cost of $65,887, $28,115 and $4,000 has been
recognized for its stock options granted below fair market value in 1998,
1997 and 1996, respectively, in the accompanying financial statements.
Stock option activity during the periods indicated is as follows:
WEIGHTED
OPTIONS AVERAGE
GRANTED EXERCISE PRICE
------------ --------------
Outstanding at December 31, 1995................. 175,000 $0.02
Granted.......................................... 167,049 $0.12
Exercised........................................ --
Canceled......................................... --
------------
Outstanding at December 31, 1996................. 342,049 $0.06
Granted.......................................... 411,701 $0.74
Exercised........................................ (29,271) $0.16
Canceled......................................... (2,500) $0.82
------------
Outstanding at December 31, 1997................. 721,979 $0.44
Granted.......................................... 917,550 $9.02
Exercised........................................ (202,583) $1.26
Canceled......................................... (21,825) $0.78
------------
Outstanding at December 31, 1998................. 1,415,121 $5.85
============
Vested at December 31, 1997........................ 397,983
============
Vested at December 31, 1998........................ 347,173
============
Options available at December 31, 1997............. 39,751
============
Options available at December 31, 1998............. 344,025
============
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ------------------- ------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.02-$0.105 136,431 6.9 years $ 0.04 120,486 $ 0.03
$0.40-$0.70 327,840 8.4 $ 0.67 163,137 $ 0.67
$0.82-$2.78 109,550 9.0 $ 1.66 26,050 $ 0.82
$4.60-$9.00 819,050 9.6 $ 8.80 37,500 $ 9.00
$27.44-$40.44 22,250 9.9 $30.22 -- $ 0.00
------------- ---------------
1,415,121 347,173
============= ===============
</TABLE>
At December 31, 1998, the range of exercise prices and
weighted-average remaining contractual life of outstanding options was
$0.02--$40.44 and 9.03 years, respectively.
The Company applies APB No. 25 in accounting for its stock options
granted to employees and accordingly, no compensation expense has been
recognized in the financial statements (except for those options issued
with exercise prices less than fair market value at date of grant). Had the
Company determined compensation expense based on the fair value at the
grant date for its stock options issued to employees under SFAS No. 123,
the Company's net loss would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss--as reported............................. $16,045,640 $3,584,400 $ 750,180
=========== ========== =========
Net loss--pro forma............................... $21,289,917 $3,621,373 $ 756,135
=========== ========== =========
Basic net loss per common share--as reported...... $ (6.74) $ (3.13) $ (0.67)
=========== ========== =========
Basic net loss per common share--pro forma........ $ (8.94) $ (3.16) $ (0.67)
=========== ========== =========
</TABLE>
(8) COMMITMENTS
(a) Office Leases
The Company leases several facilities under noncancelable leases for
varying periods through 2014.
Rent expense for the operating leases was $424,494, $81,157 and
$26,181 for the years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum payments under the various office operating leases are
as follows:
YEAR ENDED DECEMBER 31, AMOUNT
- ------------------------ --------------
1999................................................. $1,642,791
2000................................................. 1,645,080
2001................................................. 1,548,246
2002................................................. 1,361,579
2003................................................. 1,361,579
Thereafter........................................... 16,068,980
-----------
Total minimum lease payments................. $23,628,255
===========
(b) Equipment Leases
The Company's lease obligations are collateralized by CDs and interest
bearing accounts at December 31, 1998. Future minimum lease payments under
noncancellable operating leases (with initial or remaining lease terms in
excess of one year) and future minimum capital lease obligations as of
December 31, 1998 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------- ----------- ------------
<S> <C> <C>
1999............................................................ $1,353,905 $ 25,158
2000............................................................ 1,316,604 13,073
2001............................................................ 936,191 9,060
2002............................................................ 19,992 7,567
2003............................................................ 1,666 --
----------- ------------
Total minimum lease payments............................ $3,628,358 $ 54,858
=========== ============
Less amount representing interest (at rates ranging from 11% to
16.8%)........................................................ 595,906
-----------
Present value of minimum capital lease payments................. 3,032,452
-----------
Less current installments of obligation under capital leases.... 1,026,728
-----------
Obligations under capital leases, excluding current installments $2,005,724
===========
</TABLE>
(c) Employment Agreements
The Company maintains employment agreements expiring in 2001 and 2002,
with four executive officers of the Company. The employment agreements
provide for minimum salary levels, incentive compensation and severance
benefits, among other items.
(9) RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company also serve as officers
and directors of Dancing Bear Investments, Inc.
The Company has entered into an electronic commerce contract with
Republic Industries, Inc. ("Republic"), an entity affiliated with a
Director of the Company, pursuant to which the Company has granted a right
of first negotiation with respect to the exclusive right to engage in or
conduct an automotive "clubsite" on theglobe.com web site through
AutoNation, a subsidiary of Republic. Additionally, Republic has agreed to
purchase advertising from the Company for a three-year period at a price
which will be adjusted to match any more favorable advertising price quoted
to a third party by the Company, excluding certain short-term advertising
rates. In addition, the Company has entered into an electronic commerce
arrangement with InteleTravel, an entity controlled by the Chairman of the
Company, whereby the Company developed a web community for InteleTravel in
order for its travel agents to conduct business through theglobe.com in
exchange for access to InteleTravel customers for distribution of the
Company's products and services. The Company believes that the terms of the
foregoing arrangements are on comparable terms as if they were entered into
with unaffiliated third parties. As of December 31, 1998, the Company
received $83,300 and $265,000 from Republic and InteleTravel, respectively,
in connection with these arrangements.
STOCKHOLDERS' AGREEMENT
The Chairman, the Co-Chief Executive Officers, a Vice President and a
Director of the Company and Dancing Bear Investments, Inc. (an entity
controlled by the Chairman) entered into a Stockholders' Agreement (the
"Stockholders' Agreement") pursuant to which the Chairman and Dancing Bear
Investments, Inc. or certain entities controlled by the Chairman and
certain permitted transferees (the "Chairman Group") will agree to vote for
certain nominees of the Co-Chief Executive Officers or certain entities
controlled by the Co-Chief Executive Officers and certain permitted
transferees (the "Co-Chief Executive Officer Groups") to the Board of
Directors and the Co-Chief Executive Officer Groups will agree to vote for
the Chairman Group's nominees to the Board, who will represent up to five
members of the Board. Additionally, pursuant to the terms of the
Stockholders' Agreement, the Co-Chief Executive Officers, a Vice President
and a Director have granted an irrevocable proxy to Dancing Bear
Investments, Inc. with respect to any shares that may be acquired by them
pursuant to the exercise of outstanding Warrants transferred to each of
them by Dancing Bear Investments, Inc. Such shares will be voted by Dancing
Bear Investments, Inc., which is controlled by the Chairman, and will be
subject to a right of first refusal in favor of Dancing Bear Investments,
Inc. upon certain private transfers. The Stockholders' Agreement also
provides that if the Chairman Group sells shares of Common Stock and
Warrants representing 25% or more of the Company's outstanding Common Stock
(including the Warrants) in any private sale after the Offerings, the
Co-Chief Executive Officer Groups, a Vice President and a Director of the
Company will be required to sell up to the same percentage of their shares
as the Chairman Group sells. If either the Chairman Group sells shares of
Common Stock or Warrants representing 25% or more of the Company's
outstanding Common Stock (including the Warrants) or the Co-Chief Executive
Officer Groups sell shares or Warrants representing 7% or more of the
shares and Warrants of the Company in any private sale after the Offerings,
each other party to the Stockholders' Agreement, including entities
controlled by them and their permitted transferees, may, at their option,
sell up to the same percentage of their shares.
(10) SUBSEQUENT EVENTS
On February 1, 1999, theglobe.com formed Nirvana Acquisition Corp.
("Merger Sub"), a Washington corporation and a wholly-owned subsidiary of
theglobe.com. Merger Sub was merged with and into factorymall.com inc., a
Washington corporation d/b/a Azazz ("factorymall"), with factorymall as the
surviving corporation. The merger was effected pursuant to the Agreement
and Plan of Merger, dated February 1, 1999, by and among theglobe.com,
Merger Sub, and factorymall and certain shareholders thereof. As a result
of the Merger, factorymall became a wholly-owned subsidiary of
theglobe.com. factorymall operates Azazz, a leading interactive department
store.
The consideration payable by theglobe.com in connection with the
merger consists of 307,000 newly issued shares of common stock, par value
$0.001, of theglobe.com. In addition, options to purchase shares of
factorymall's common stock, without par value, were exchanged for options
to purchase approximately 41,017 shares of theglobe.com Common Stock.
Warrants to purchase shares of factorymall Common Stock were exchanged for
warrants to purchase approximately 9,405 shares of theglobe.com Common
Stock. theglobe.com also assumed certain bonus obligations of factorymall
triggered in connection with the Merger which will result in the issuance
by theglobe.com of approximately 36,864 shares of theglobe.com Common Stock
and payment by theglobe.com of approximately $451,232 in cash. The Company
also incurred expenses of approximately $694,300 related to the Merger.
The total purchase price for this transaction was $22,776,549. The
difference between the fair market value of factorymall's assets and the
purchase price will be accounted for as goodwill and will be amortized over
three years.
The Company's Employee Stock Purchase Plan ("ESPP") was adopted by the
Board of Directors in February 1999. The ESPP will provide eligible
employees of the Company the opportunity to apply a portion of their
compensation to the purchase of shares of the Company at a 15% discount.
Two hundred thousand (200,000) shares of authorized but unissued Company
common stock will be reserved for issuance under the ESPP. The ESPP is
subject to stockholder approval.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Part III, Item 10, regarding the
Registrant's directors is included in the Company's Proxy Statement
relating to the Company's annual meeting of stockholders to be held in May
1999, and is incorporated herein by reference. The information appears in
the Proxy Statement under the caption "Election of Directors." The Proxy
Statement will be filed within 120 days of December 31, 1998, the Company's
year end.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Part III, Item 11, is included in the
Company's Proxy Statement relating to the Company's annual meeting of
stockholders to be held in May 1999, and is incorporated herein by
reference. The information appears in the Proxy Statement under the caption
"Executive Compensation." The Proxy Statement will be filed within 120 days
of December 31, 1998, the Company's year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Part III, Item 12, is included in the
Company's Proxy Statement relating to the Company's annual meeting of
stockholders to be held in May 1999, and is incorporated herein by
reference. The information appears in the Proxy Statement under the caption
"Beneficial Ownership of Shares." The Proxy Statement will be filed within
120 days of December 31, 1998, the Company's year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding the Company's relationships and related
transactions is available under "Certain Transactions" in the Company's
Proxy Statement relating to the Company's annual meeting of stockholders to
be held in May 1999, and is incorporated herein by reference. The Proxy
Statement will be filed within 120 days of December 31, 1998, the Company's
year end.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: See Index to Financial Statements at Item 8
on page 38 of this report.
(2) Financial Statement Schedule: See Index to Financial Statements
at Item 8 on page 38 of this report.
(a)(3) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference:
2.1 Agreement and Plan of Merger dated as of February 1,
1999 by and among theglobe.com, inc., Nirvana
Acquisition Corp., factorymall.com, inc. d/b/a Azazz,
and certain selling stockholders thereof**
3.1 Form of Fourth Amended and Restated Certificate of
Incorporation of the Company*
3.2 Form of By-Laws of the Company*
4.1 Second Amended and Restated Investor Rights Agreement
among the Company and certain equity holders of the
Company, dated as of August 13, 1997*
4.2 Amendment No.1 to Second Amended and Restated Investor
Rights Agreement among the Company and certain equity
holders of the Company, dated as of August 31, 1998
4.3 Registration Rights Agreement, dated as of September 1,
1998
4.4 Specimen certificate representing shares of Common
Stock of the Company*
4.5 Amended and Restated Warrant to Acquire Shares of
Common Stock*
4.6 Form of Rights Agreement, by and between the Company
and American Stock Transfer & Trust Company as Rights
Agent*
4.7 Registration Rights Agreement among the Company and
certain equity holders of the Company, dated February
1, 1999
9.1 Stockholders' Agreement by and among Dancing Bear
Investments, Inc., Michael Egan, Todd V. Krizelman,
Stephan J. Paternot, Edward A. Cespedes and Rosalie V.
Arthur, dated as of February 14, 1999
10.1 Employment Agreement dated August 13, 1997, by and
between the Company and Todd V. Krizelman*
10.2 Employment Agreement dated August 13, 1997, by and
between the Company and Stephan J. Paternot*
10.3 Employment Agreement dated July 13, 1998, by and
between the Company and Francis T. Joyce*
10.4 Form of Indemnification Agreement between the Company
and each of its Directors and Executive Officers*
10.5 Lease Agreement dated January 14, 1997 between the
Company and Fifth Avenue West Associates L.P.*
10.6 Lease Agreement dated January 12, 1999 between the
Company and Broadpine Realty Holding Company, Inc.
10.7 1998 Stock Option Plan
10.8 1995 Stock Option Plan*
10.9 D.A.R.T. Service Agreement dated April 15, 1997*+
10.10 Amendment dated as of May 1, 1998, to original D.A.R.T.
Service Agreement dated April 15, 1997*+
10.11 License Agreement between the Company and Engage
Technologies, Inc. dated October 31, 1998. ++
10.12 Employment Agreement dated August 31, 1998, by and
between the Company and Dean Daniels*
10.13 Agreement between the Company, Republic Industries,
Inc., and Michael S. Egan, dated August 12, 1998,
regarding the conduct of automotive clubsites on
theglobe.com*+
10.14 Data Center Space Lease between Telehouse International
Corporation of America and the Company, dated August
24, 1998*
10.15 Travel Services Alliance Agreement between the Company
and Lowestfare.com, dated as of September 15, 1998*+
10.16 Form of Employee Stock Purchase Plan
11.1 Computation of Loss Per Share
23.1 Consent of KPMG LLP
23.2 Consent of ABC Interactive*
27.1 Financial Data Schedule
99.1 Valuation and Qualifying Accounts
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed or required to be filed for the last
quarter of the fiscal year.
- ------------------------------
* Incorporated by reference from our registration statement on Form S-1
(Registration No.333-59751).
** Incorporated by reference from our report on Form 8-K filed on
February 16, 1999.
+ Confidential treatment granted as to parts of this document.
++ Confidential treatment requested.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1999
theglobe.com, inc.
By /s/ Todd V. Krizelman
-------------------------------------------
TODD V. KRIZELMAN
CO-CHIEF EXECUTIVE OFFICER AND CO-PRESIDENT
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated this 29th day of March,
1999.
/s/ Michael S. Egan Chairman
-------------------------
MICHAEL S. EGAN
/s/ Todd V. Krizelman Co-Chief Executive Officer,
------------------------- Co-President and Director
TODD V. KRIZELMAN
/s/ Stephan J. Paternot Co-Chief Executive Officer, Co-
------------------------- President, Secretary and Director
STEPHAN J. PATERNOT
/s/ Francis T. J Vice President and Chief Financial
------------------------- Officer (Chief Accounting Officer)
FRANCIS T. JOYCE
/s/ Edward A. Cespedes Vice President of Corporate
------------------------- Development and Director
EDWARD A CESPEDES
/s/ Rosalie V. Arthur Director
-------------------------
ROSALIE V. ARTHUR
_________________________ Director
HENRY C. DUQUES
/s/ Robert M. Halperin Director
-------------------------
ROBERT M. HALPERIN
_________________________ Director
DAVID A. HOROWITZ
_________________________ Director
H. WAYNE HUIZENGA
EXHIBIT 4.2
AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
theglobe.com, inc.
August 31, 1998
<PAGE>
AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED INVESTOR RIGHTS
AGREEMENT (the "Amendment") is entered into as of the 31st day of August,
1998, by and among theglobe.com, inc., a Delaware corporation (the
"Company"), and the Investors, as defined in the Second Amended and
Restated Investor Rights Agreement (the "Agreement"). Capitalized items
used herein and not otherwise defined shall have the meanings ascribed
thereto in the Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, the Investors hold registration and information rights
pursuant to the Agreement;
WHEREAS, pursuant to Section 2.10 of the Agreement, the holders of a
majority in interest of the Registrable Securities desire to amend the
provisions of Section 2 of the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
The first paragraph of Section 2.2 of the Agreement is hereby deleted
in its entirety and is replaced with the following:
2.2 PIGGYBACK REGISTRATIONS. Except in connection with an Initial
Offering, the Company shall notify all Holders in writing at least
fifteen (15) days prior to the filing of any registration statement
under the Securities Act for purposes of a public offering of
securities (other than non-convertible debt securities) of the Company
(excluding registration statements relating to employee benefit plans
or with respect to corporate reorganizations or shares sold in
connection with an acquisition, including other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an
opportunity to include in such registration statement all or part of
such Registrable Securities held by such Holder. Each Holder desiring
to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within fifteen (15) days
after the above-described notice from the Company, so notify the
Company in writing. Such notice shall state the maximum number of
Registrable Securities intended to be included in such registration
and the intended method of disposition of the Registrable Securities
by such Holder. If a Holder decides not to request inclusion of all of
its Registrable Securities in any registration statement thereafter
filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent such
registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein. Notwithstanding the foregoing,
nothing in this Section 2.2 shall be deemed to convey upon any Holder
the right to include in any registration statement filed in connection
with an Initial Offering all or part of such Holder's Registrable
Securities.
Paragraph (a) of Section 2.2 of the Agreement is hereby deleted in its
entirety and is replaced with the following:
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.2 is for an underwritten
offering, the Company shall so advise the Holders. In such event, the
right of any such Holder to be included in a registration pursuant to
this Section 2.2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. Each
Holder proposing to distribute its Registrable Securities through such
underwriting shall enter into a custody agreement and power of
attorney authorizing the Company to sell the Registrable Securities to
be offered by such Holders and to execute on the Holder's behalf an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. If any
Holder is or will be unable to deliver any document reasonably
required by the underwriters to register such Registrable Securities,
then the Company shall have no obligation to include such Registrable
Securities in such registration. Notwithstanding any other provision
of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the
underwriting shall be allocated as follows: first, to the Company for
its own account; second, to the holders under the Company's
Registration Rights Agreement, dated as of August ____, 1998 (the
"Registration Rights Agreement"), and Holders on a pro rata basis
based on the total number of Registrable Securities held by such
persons; and third, to any stockholder of the Company (other than a
Holder or a holder under the Registration Rights Agreement) on a pro
rata basis. No such reduction shall reduce the securities being
offered by the Company for its own account to be included in the
registration and underwriting. In no event will shares of any other
selling stockholder be included in such registration which would
reduce the number of shares which may be included by Holders without
the written consent of Holders of not less than two-thirds (66 2/3%)
of the Registrable Securities proposed to be sold in the offering.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 to Second Amended and Restated Investor Rights Agreement as of the
date set forth above.
theglobe.com, inc. Dancing Bear Investments, Inc.
By: By:
------------------------------- ------------------------------
Todd V. Krizelman Name:
Co-Chief Executive Officer and Title:
Co-President
Robert Halperin
By:
-------------------------------
Stephan J. Paternot
Co-Chief Executive Officer,
Co-President and Secretary ------------------------------
David Horowitz
------------------------------
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THEGLOBE.COM, INC
SEPTEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS...........................................................1
2. Registration..........................................................3
2.1 Piggyback Registrations.........................................3
2.2 Demand Registration.............................................4
2.3 Expenses of Registration........................................6
2.4 Obligations of the Company......................................6
2.5 Expiration of Registration Rights...............................10
2.6 Delay of Registration; Furnishing Information...................10
2.7 Indemnification.................................................10
2.8 Assignment of Registration Rights...............................12
2.9 Amendment of Registration Rights................................13
2.10 "Market Stand-Off" Agreement....................................13
2.11 Rule 144 Reporting..............................................13
3. INFORMATION RIGHTS....................................................14
3.1 Quarterly Reports...............................................14
3.2 Confidentiality.................................................14
4. GENERAL...............................................................15
4.1 Governing Law...................................................15
4.2 Survival........................................................15
4.3 Successors and Assigns..........................................15
4.4 Severability....................................................15
4.5 Amendment and Waiver............................................15
4.6 Delays or Omissions.............................................16
4.7 Notices.........................................................16
4.8 Attorneys' Fees.................................................16
4.9 Headings........................................................16
4.10 Entire Agreement................................................16
4.11 Counterparts....................................................16
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of September 1, 1998 (this
"Agreement"), by and among theglobe.com, inc., a Delaware corporation (the
"Company"), Dancing Bear Investments, Inc. ("Egan"), Todd V. Krizelman
("Krizelman"), Stephan J. Paternot ("Paternot") and the persons listed on
Exhibit A hereto (the "Series A Investors").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Egan purchased from the Company fifty-one (51) shares of the
Company's Series D Preferred Stock and a warrant to purchase ten (10)
shares of the Company's Series E Preferred Stock (the "Warrant"), pursuant
to a Stock Purchase Agreement dated August 13, 1997 (the "Stock Purchase
Agreement");
WHEREAS, simultaneously therewith, Egan, the Company, the holders of
Series B Preferred Stock ("Series B Holders") and the holders of Series C
Preferred Stock ("Series C Holders," and together with the Series B
Holders, the "Series B and C Holders") entered into a Second Amended and
Restated Investor Rights Agreement, dated August 13, 1997 (the "Investor
Rights Agreement"), which provides certain registration rights to Egan and
the Series B and C Holders, such registration rights terminating three
years after the date of the Initial Offering pursuant to Section 2.6 of
such agreement (the "Termination");
WHEREAS, Krizelman and Paternot each own Common Stock of the Company,
par value $0.001 per share ("Common Stock"), and do not possess
registration rights;
WHEREAS, the Series A Investors own Series A Preferred Stock, par
value $0.001 per share, of the Company ("Series A Preferred Stock") and do
not possess registration rights;
WHEREAS, the parties hereto desire to provide certain registration
rights, to be effective upon an Initial Offering (as defined herein), with
respect to the Common Stock (i) held by Krizelman and Paternot, (ii) issued
upon the conversion of Series A Preferred Stock held by each holder
thereof, and (iii) issued upon conversion of the Series D Preferred Stock,
Series E Preferred Stock or upon exercise of the Warrant held by Egan,
following Termination of existing registration rights held by Egan.
NOW, THEREFORE, in consideration of the market stand-off provisions
contained herein restricting the sale of securites of the Company held by
the parties hereto, amendment of the Warrant to be exercisable for a fixed
number of shares of Common Stock following an Initial Offering, and the
mutual promises, representations, warranties, covenants and conditions set
forth in this Agreement, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMON STOCK" has the meaning given to it in the recitals hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" means Krizelman, Paternot, Egan and the Series A Investors,
and, pursuant to Section 2.8, their successors and assigns owning of record
Registrable Securities that have not been sold to the public.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the
Securities Act raising gross proceeds for the Company in excess of Fifteen
Million Dollars ($15,000,000).
"INVESTOR RIGHTS AGREEMENT" has the meaning given to it in the
recitals hereto.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of effectiveness
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) Common Stock; (ii) Common Stock
issued or issuable upon conversion of the Series A Preferred Stock; (iii)
any Common Stock issued upon the conversion of any shares of Series D
Preferred Stock; (iv) any Common Stock issued upon exercise of the Warrant
(or upon the conversion of Series E Preferred Stock which was issued upon
exercise of the Warrant); and (v) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall not
include any securities that have been sold by a person to the public either
pursuant to a registration statement or Rule 144 or any successor rule or
sold in a private transaction in which the transferor's rights under
Section 2 of this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the
Company's Common Stock that are Registrable Securities and either (i) are
then issued and outstanding or (ii) are issuable pursuant to then
exercisable or convertible securities.
"REGISTRATION EXPENSES" means all expenses incurred by the Company in
complying with Sections 2.1 and 2.2, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements of a single
special counsel for the Holders, blue sky fees and expenses and the expense
of any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts and selling
commissions applicable to the sale.
"SERIES A INVESTORS" has the meaning given to it in the recitals
hereto.
"SERIES A PREFERRED STOCK" has the meaning given to it in the recitals
hereto.
"SERIES B HOLDERS" has the meaning given to it in the recitals hereto.
"SERIES B PREFERRED STOCK" means shares of Series B Preferred Stock,
par value $0.001 per share, of the Company.
"SERIES B AND C HOLDERS" has the meaning given to it in the recitals
hereto.
"SERIES C HOLDERS" has the meaning given to it in the recitals hereto.
"SERIES D PREFERRED STOCK" means the shares of Series D Preferred
Stock, par value $0.001 per share, of the Company.
"SERIES E PREFERRED STOCK" has the meaning given to it in the recitals
hereto.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"STOCK PURCHASE AGREEMENT" has the meaning given to it in the recitals
hereto.
"WARRANT" has the meaning given to it in the recitals hereto.
2. REGISTRATION.
2.1 PIGGYBACK REGISTRATIONS. Except in connection with an Initial
Offering, the Company shall notify all Holders in writing at least fifteen
(15) days prior to the filing of any registration statement under the
Securities Act for purposes of a public offering of securities (other than
non-convertible debt securities) of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities
of the Company, but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or shares sold
in connection with an acquisition, including other transactions under Rule
145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held
by it shall, within fifteen (15) days after the above-described notice from
the Company, so notify the Company in writing. Such notice shall state the
maximum number of Registrable Securities intended to be included in such
registration and the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to request inclusion of
all of its Registrable Securities in any registration statement thereafter
filed by the Company, such Holder shall nevertheless continue to have the
right to include any Registrable Securities in any subsequent such
registration statement or registration statements as may be filed by the
Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein. Notwithstanding the foregoing, nothing in this
Section 2.1 shall be deemed to convey upon any Holder the right to include
in any registration statement filed in connection with an Initial Offering
all or part of such Holder's Registrable Securities.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.1 is for an underwritten
offering, the Company shall so advise the Holders. In such event, the right
of any such Holder to be included in a registration pursuant to this
Section 2.1 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein; provided that each such
Holder shall agree to reasonable limitations on the ability to withdraw
from such underwriting. Each Holder proposing to distribute its Registrable
Securities through such underwriting shall enter into a custody agreement
and power of attorney, authorizing the Company to (i) sell the Registrable
Securities to be offered by such Holders and (ii) execute on the Holder's
behalf an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. If any Holder
is or will be unable to deliver any document reasonably required by the
underwriters in connection with the sale of such Registrable Securities,
including, but not limited to legal opinions and other closing
certificates, then the Company shall have no obligation to include such
Registrable Securities in such registration. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith
that marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated as follows: first, to the Company for its own account;
second, to the holders under the Investor Rights Agreement and the Holders
on a pro rata basis based on the total number of Registrable Securities
held by such persons; and third, to any stockholder of the Company (other
than a Holder or a holder under the Investor Rights Agreement) on a pro
rata basis. No such reduction shall reduce the securities being offered by
the Company for its own account to be included in the registration and
underwriting. In no event will shares of any other selling stockholder be
included in such registration which would reduce the number of shares which
may be included by Holders, and holders under the Investor Rights
Agreement, without the written consent of Holders, and holders under the
Investor Rights Agreement of not less than two-thirds (66 2/3%) of the
Registrable Securities proposed to be sold in the offering.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.1 prior to the effectiveness of such registration, whether or not
any Holder has elected to include securities in such registration, in which
event the Company shall give written notice to all Holders of record of
Registrable Securities. The Registration Expenses of such withdrawn
registration shall be borne by the Company in accordance with Section 2.3
hereof.
(c) LIMIT ON NUMBER. The Company shall not have any further
obligations under this Section 2.1 if the Company has already effected five
(5) registrations for any Holders pursuant to this Section 2.1. No rights
conveyed to a Holder in this Agreement shall be in duplication of any
rights conveyed to a holder for the same Registrable Securities pursuant to
the Investor Rights Agreement, and no such Holder shall be entitled to
Demand or Piggyback Registration Rights under both such agreements for the
same Registrable Securities.
2.2 DEMAND REGISTRATION. Subject to Section 2.2 (c), at any time and
from time to time after the closing of an Initial Offering, the Holders of
(x) twenty-five percent (25%) of all of the Registrable Securities or (y)
fifty percent (50%) of the sum of the total number of Registrable
Securities originally issued as Common Stock and the member of shares of
Common Stock issuable in respect of the Series A Preferred Stock, shall
have the right to require the Company to file a registration statement
under the Securities Act covering all or part of their respective
Registrable Securities, by delivering a written request therefor to the
Company specifying the number of Registrable Securities to be included in
such registration by such Holders and the intended method of distribution
thereof. All requests pursuant to this Section 2.2 are referred to herein
as "Demand Registration Requests," and the registrations requested are
referred to herein as "Demand Registrations." As promptly as practicable,
but no later than ten (10) days after receipt of a Demand Registration
Request, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such
written notice from the Company; provided, however, that the Company shall
not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 2.2:
(i) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any)
at an aggregate price to the public of less than $5,000,000; or
(ii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such Registration to be effected at such time, in which
event the Company shall have the right to defer the filing of the
registration statement for a period of not more than one hundred twenty
(120) days after receipt of the request of the Holder or Holders under this
Section 2.2; provided that such right to delay a request shall be exercised
by the Company no more than once in any one-year period, or
(iii) if the Company has already effected four (4) Demand
Registrations for the Holders pursuant to this Section 2.2;
(iv) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or
compliance; or
(v) if the registration statement with respect to a Demand
Registration would be declared effective within a period of 180 days after
the effective date of the registration statement pertaining to the Initial
Offering or within a period of ninety days (90) after the effective date of
the registration statement pertaining to subsequent public offerings (other
than registration statements relating to employee benefit plans or Rule 145
transactions).
(c) If the selling Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any
Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the selling
Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting by a majority in interest of
the selling Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). If any Holder is or will be unable to deliver
any document reasonably required by the underwriters in connection with the
sale of such Registrable Securities, including legal opinions and closing
certificates, then the Company shall have no obligation to include such
Registrable Securities in such registration. Notwithstanding any other
provision of this Section 2.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities to be
underwritten then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the
number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities (and to any holders
of registrable securities making a concurrent Demand Registration Request
pursuant to Section 2.2 of the Investor Rights Agreement) on a pro rata
basis based on the number of Registrable Securities proposed to be
registered by all such selling Holders. Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from the
registration.
2.3 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration
under Section 2.1 or Section 2.2 shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder shall be
borne by the holders of the securities so registered pro rata on the basis
of the number of shares so registered. The Company shall not, however, be
required to pay for expenses of any registration proceeding begun pursuant
to Section 2.2, the request of which has been subsequently withdrawn by the
requesting Holders unless (i) the withdrawal is based upon material adverse
information concerning the Company of which such Holders were not aware at
the time of such request, or (ii) the Holders of a majority of Registrable
Securities agree to forfeit their right to one requested registration
pursuant to Section 2.2, in which event such right shall be forfeited by
all Holders. If the Holders are required to pay the Registration Expenses,
such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the
number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant
to clause (i) above, then the Holders shall not forfeit their rights
pursuant to Section 2.2 to a registration.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one
hundred eighty (180) days or, if earlier, until the Holder or Holders have
completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish (without charge) to the selling Holders such number
of copies of the registration statement, each amendment and supplement
thereto (in each case including all exhibits) and the prospectus included
in such registration statement, including each preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business
or to file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form of the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Promptly notify each Holder selling Registrable Securities,
and every other holder of securities, if any, covered by such registration
statement and each managing underwriter, if any: (i) when the registration
statement, any pre-effective amendment, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the registration
statement has been filed and, with respect to the registration statement or
any post-effective amendment, when the same has become effective; (ii) of
any request by the Commission or state securities authority for amendments
or supplements to the registration statement or the prospectus related
thereto or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for the
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose; and (v)
of the existence of any fact of which the Company becomes aware which
results in the registration statement, the prospectus related thereto or
any document incorporated therein by reference containing an untrue
statement of a material fact or omitting to state a material fact required
to be stated therein or necessary to make any statement therein not
misleading.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities
are being sold through underwriters or, if such securities are not being
sold through underwriters, on the date that the registration statement with
respect to such securities becomes effective: (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to the managing
underwriter in an underwritten public offering addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities, and (ii) a "cold comfort" letter dated as of such
date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering addressed to
the underwriters, if any, and if permitted by applicable accounting
standards, to the Holders requesting registration of Registrable
Securities.
(h) Comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as soon
as reasonably practicable after the effective date of the registration
statement (and in any event within 16 months thereafter), an earnings
statement (which need not be audited) covering the period of at least
twelve consecutive months beginning with the first day of the Company's
first calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder.
(i) (i) Cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any), if
the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) if no similar securities are then so
listed, cause all such Registrable Securities to be listed on a national
securities exchange, secure designation of all such Registrable Securities
as a National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") "national market system security" within the meaning of
Rule 11Aa2-1 of the Commission, secure NASDAQ authorization for such shares
and, without limiting the generality of the foregoing, take all actions
that may be reasonably required by the Company as the issuer of such
Registrable Securities in order to facilitate the managing underwriter's
arranging for the registration of at least two market makers as such with
respect to such shares with the National Association of Securities Dealers,
Inc.
(j) Provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement.
(k) Use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement.
(l) Provide a CUSIP number for all Registrable Securities, not
later than the effective date of the registration statement.
(m) Make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking into
account the needs of the Company's businesses and the requirements of the
marketing process) in the marketing of Registrable Securities in any
underwritten offering.
(n) Promptly prior to the filing of any document which is to be
incorporated by reference into the registration statement or the prospectus
(after the initial filing of such registration statement) provide copies of
such document to counsel to the selling Holders of Registrable Securities
and to the managing underwriter, if any, and make the Company's
representatives reasonably available for discussion of such document and
make such changes in such document concerning the selling Holders prior to
the filing thereof as counsel for such selling Holders or underwriters may
reasonably request.
(o) Cooperate with the selling Holders of Registrable Securities
and the managing underwriter, if any, to facilitate the timely preparation
and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such
Registrable Securities to be issued in such denominations and registered in
such names in accordance with the underwriting agreement prior to any sale
of Registrable Securities to the underwriters or, if not an underwritten
offering, in accordance with the instructions of the selling Holders of
Registrable Securities at least three business days prior to any sale of
Registrable Securities.
(p) Take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition
of such Registrable Securities.
The Company may require as a condition precedent to the Company's
obligations under this Section 2.5 that each seller of Registrable
Securities as to which any registration is being effected furnish the
Company such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request provided
that such information shall be used only in connection with such
registration.
Each Holder of Registrable Securities acknowledges that in connection
with any underwritten offering, the underwriters may require an
over-allotment option covering up to 15% of the shares of capital stock
sold in the underwriter offering. The Company may at its option (a) provide
the shares subject to the over-allotment option (provided that all of the
Registrable Securities to be included in the underwriter offering are sold
in the initial underwritten offering) or (b) determine that up to 15% of
each Holder's Registrable Securities to be sold in the underwritten
offering shall not be included in the initial underwriter offering but
shall be reserved to satisfy the over-allotment option and the Holders of
Registrable Securities hereby agree to take all actions reasonably
necessary to comply with the Company's determination.
Each Holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described
in Section 2.4(f)(v), such Holder will discontinue such Holder's
disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt
of the copies of the supplemented or amended prospectus contemplated by
Section 2.4(f)(v) and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file
copies, then in such Holder's possession of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such
notice. In the event the Company shall give any such notice, the applicable
period mentioned in Section 2.4(a) shall be extended by the number of days
during such period from and including the date of the giving of such notice
to and including the date when each seller of any Registrable Securities
covered by such registration statement shall have received the copies of
the supplemented or amended prospectus contemplated by Section 2.4(f).
If any such registration statement or comparable statement under "blue
sky" laws refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory
to such Holder and the Company, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist
in meeting any future financial requirements of the Company, or (ii) in the
event that such reference to such Holder by name or otherwise is not in the
judgment of the Company, as advised by counsel, required by the Securities
Act or any similar federal statute or any state "blue sky" or securities
law then in force, the deletion of the reference to such Holder.
2.5 EXPIRATION OF REGISTRATION RIGHTS. A Holder's registration rights
shall expire if (i) the Company has completed its Initial Offering and is
subject to the provisions of the Exchange Act, and (ii) all Registrable
Securities held by and issued to such Holder may be sold under Rule 144
during any ninety (90) day period.
2.6 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.1 or 2.2 that the selling
Holders shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.1 or 2.2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, directors and legal
counsel of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such registration
statement; and the Company will reimburse each such Holder, partner,
officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 2.7(a)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld or
delayed, nor shall the Company be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities
as to which such registration qualifications or compliance is being
effected, indemnify and hold harmless the Company, each of its directors,
its officers, and legal counsel and each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter and any
other Holder selling securities under such registration statement or any of
such other Holder's partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, or partner, director,
officer or controlling person of such other Holder may become subject under
the Securities Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under
an instrument duly executed by such Holder and stated to be specifically
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was
such a Violation; provided, however, that the indemnity agreement contained
in this Section 2.7(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld or delayed; provided further, that in no event shall
any indemnity under this Section 2.7 exceed the proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
2.7, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in
and, to the extent the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that
an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests or conflicting defenses between such indemnified party
and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 2.7, but the omission to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.7.
(d) If the indemnification provided for in this Section 2.7 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or
liabilities referred to herein, the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall to the extent
permitted by applicable law contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the
other in connection with the Violation(s) that resulted in such loss,
claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided
that, in no event shall any contribution by a Holder hereunder exceed the
proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section
2.7 shall survive completion of any offering of Registrable Securities in a
registration statement. No indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. In the event any offering
of Registrable Securities is underwritten, and the underwriting agreement
provides for indemnification and/or contribution by the Company and the
Holders offering securities thereunder, the indemnification and/or
contribution obligations of the Company and the Holders hereunder shall in
no event exceed the obligations of the parties set forth in such
underwriting agreement.
2.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities
which (i) is a Holder's family member or trust for the benefit of an
individual Holder, or (ii) acquires at least ten thousand (10,000) shares
of Registrable Securities prior to conversion to Common Stock or one
hundred thousand (100,000) shares of Registrable Securities issued upon
conversion of the Shares (as adjusted for stock splits, combinations and
the like that occur after the original issuance of such shares); provided,
however, (A) the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned, and (B) such transferee shall agree
to be subject to all restrictions set forth in this Agreement; provided,
further, that such transfer shall have been made in compliance with the
Bylaws, as applicable.
2.9 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively) only
with the written consent of the Company and the Holders of at least a
majority in interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 2.9 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Section 2,
Holders hereby agree to be bound by the provisions hereunder.
2.10 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the
representative of the underwriters of Common Stock (or other securities) of
the Company, each Holder shall not sell or otherwise transfer or dispose of
any Shares of Common Stock (or other securities) of the Company held by
each such Holder (other than those included in the registration) for a
period specified by the representative of the underwriters not to exceed a
period of seven (7) days prior to and one hundred eighty (180) days
following the effective date of a registration statement of the Company
filed under the Securities Act pertaining to the Company's Initial Offering
or a period of seven (7) days prior to and ninety (90) days following the
effective date of any other registration statement of the Company filed
under the Securities Act (other than registration statements relating to
employee benefit plans and transactions under Rule 145 of the Securities
Act), provided that all executive officers and directors of the Company
enter into similar agreements. The Company will also agree to a lock-up of
the same duration if requested by the underwriters of the Common Stock.
The obligations described in this Section 2.10 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form
S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to shares issued in an acquisition or pursuant
to a Commission Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer
instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
2.11 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its
securities to the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 of the
Securities Act and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual
or quarterly report of the Company; and such other reports and documents as
a Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.
3. INFORMATION RIGHTS.
3.1 QUARTERLY REPORTS. So long as a Holder owns at least ten thousand
(10,000) shares of the Shares or one hundred thousand (100,000) shares of
the Common Stock issued upon conversion of the Shares (as adjusted for
stock splits, combinations and the like that occur after the original
issuance of such shares), as soon as practicable after the end of each
fiscal quarter of the Company, and in any event within ninety (90) days
thereafter, the Company will furnish to such Holder an unaudited balance
sheet of the Company, as at the end of such fiscal quarter, and an
unaudited consolidated statement of income and an unaudited consolidated
statement of cash flows of the Company, for such quarter, all prepared in
accordance with generally accepted accounting principles consistently
applied. This obligation shall expire and terminate as to each Holder on
the effective date of the first registration statement for the public
offering of the Company's Common Stock.
3.2 CONFIDENTIALITY.
(a) Each Holder agrees not to disclose to any third party or use
Confidential Information (as hereinafter defined) of the Company for its
own use or for any purpose except to evaluate and enforce its equity
investment in the Company. Each Holder shall undertake to treat such
Confidential Information in a manner consistent with the treatment of its
own information of similar proprietary nature and agrees that it shall
protect the confidentiality of Confidential Information. Each transferee of
any Holder who receives Confidential Information shall agree to be bound by
such provisions.
(b) "Confidential Information" means any reports provided
pursuant to Section 3.1 and any other information disclosed by the Company
either directly or indirectly in a writing stamped "Confidential" or
"Proprietary" or, if disclosed orally, which is promptly confirmed in
writing to be Confidential Information. Confidential Information does not
include information, technical data or know-how which (i) is in the
Holder's possession at the time of disclosure as shown by such Holder's
files and records immediately prior to the time of disclosure; (ii) is
generally known not as a result of any action or inaction of the Holder;
(iii) is disclosed to a Holder on a non-confidential basis by a third party
having a legal right to disclose such information; or (iv) is approved for
release by written authorization of Company. The provisions of this Section
shall not apply (x) to the extent that a Holder is required to disclose
Confidential Information pursuant to any law, statute, rule or regulation
or any order or legal process of any court; or (y) to the disclosure of
Confidential Information to a Holder's counsel, accountants or other
professional advisors.
4. GENERAL.
4.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York without giving effect to conflicts
of laws principles.
4.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder
and the closing of the transactions contemplated hereby. All statements as
to factual matters contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant hereto in connection with
the transactions contemplated hereby shall be deemed to be representations
and warranties by the Company hereunder solely as of the date of such
certificate or instrument.
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute
owner and holder of such shares for all purposes, including the payment of
dividends or any redemption price.
4.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
4.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the
holders of fifty-one percent (51%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be
waived only with the written consent of fifty-one percent (51%) of the
Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional
purchasers of Shares as "Holders" and parties hereto.
4.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or
approval of any kind or character on any Holder's part of any breach,
default or noncompliance under the Agreement or any waiver on such Holder's
part of any provisions or conditions of this Agreement must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, by law, or otherwise
afforded to Holders, shall be cumulative and not alternative.
4.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed facsimile if sent
during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) two (2)
days after deposit with a recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on Exhibit A
hereto or at such other address as such party may designate by ten (10)
days advance written notice to the other parties hereto.
4.8 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
4.9 HEADINGS. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all previous negotiations, agreements and
arrangements made between the parties with respect to such subject matter.
4.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date set forth in the first paragraph hereof.
theglobe.com, inc.
By:
--------------------------------
Name:
Title:
-----------------------------------
MICHAEL S. EGAN
-----------------------------------
TODD V. KRIZELMAN
-----------------------------------
STEPHAN J. PATERNOT
SERIES A INVESTOR
-----------------------------------
Name:
<PAGE>
EXHIBIT A
---------
SERIES A INVESTORS
------------------
Bergendahl, Anders
Bergendahl, Mia
Grey, Nicki
Grinstead, Simon
Hirsch, Jason
Krizelman, Allen
Krizelman, Susan
Krizelman, Todd
Maconie, Andrew
Paternot, Jacques
Paternot, Madeleine
Paternot, Monica
Paternot, Thierry
Paternot, Yves
S. Knight Pond Trust
EXHIBIT 4.7
REGISTRATION RIGHTS AGREEMENT
THEGLOBE.COM, INC.
FEBRUARY 1, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS.............................................................1
2. REGISTRATION; RESTRICTIONS ON TRANSFER..................................3
2.1 Restrictions on Transfer..........................................3
2.2 Shelf Registration................................................4
2.3 Delay, Postponement and Suspension of Sale........................6
2.4 Piggyback Registrations...........................................6
2.5 Registration Expenses.............................................7
2.6 Obligations of the Company........................................7
2.7 Termination of Registration Rights...............................10
2.8 Delay of Registration............................................10
2.9 Indemnification..................................................10
2.10 "Market Stand-Off"Agreement......................................13
2.11 Rule 144 Reporting...............................................14
3. CONFIDENTIALITY........................................................14
4. GENERAL................................................................15
4.1 Governing Law....................................................15
4.2 Survival.........................................................15
4.3 Successors and Assigns...........................................15
4.4 Severability.....................................................15
4.5 Amendment and Waiver.............................................15
4.6 Delays or Omissions..............................................16
4.7 Notices..........................................................16
4.8 Attorneys'Fees...................................................16
4.9 Headings.........................................................16
4.10 Entire Agreement.................................................16
4.11 Counterparts.....................................................16
4.12 Third-Party Beneficiaries........................................17
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of the 1st day of February, 1999, by and among theglobe.com, inc., a
Delaware corporation (the "Company"), and the Persons listed on Exhibit A
hereto.
WHEREAS, pursuant to the Agreement and Plan of Merger, dated February
1, 1999 (the "Merger Agreement"), by and among the Company and certain of
the Holders, pertaining to the acquisition by the Company of
factorymall.com, inc., a Washington corporation, d/b/a Azazz.com (the
"Acquired Company"), the Company has agreed to provide certain registration
rights to the Holders as set forth herein; and
WHEREAS, the foregoing parties desire to set forth their agreement as
to the registration rights of the Holders;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"ACQUIRED COMPANY" shall have the meaning set forth in the recitals
hereto.
"AUDITED FINANCIAL STATEMENTS" shall mean balance sheets, statements
of operations, statements of stockholders' equity and statements of cash
flows, including any pro forma financial statements (and any notes related
to the foregoing) necessary in the Company's judgment in order to meet the
requirements of Regulation S-X of the Securities Act or other federal laws
applicable to the Company in connection with the Registration Statement
contemplated hereby, covering any time period required by such securities
laws, prepared in accordance with United States Generally Accepted
Accounting Principles consistently applied and audited by a nationally
recognized independent accounting firm selected by the Company, which firm
has executed an unqualified opinion related to, and has consented to the
inclusion of, such financial statements in such Registration Statement.
"COMMON STOCK" shall mean the common stock, par value $.001 per share,
of the Company.
"COMPETITOR" shall mean any Person engaged in, or owning or
controlling, a business operating an Internet Web site, an online
e-commerce business or a virtual community Web site.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
3.
"DELAY PERIOD" shall have the meaning set forth in Section 2.3
"EFFECTIVE DATE" shall have the meaning set forth in Section 2.2.
"EFFECTIVE PERIOD" shall have the meaning set forth in Section 2.2.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
References to a particular section of the Securities Exchange Act of 1934,
as amended, shall include a reference to the comparable section, if any, of
any such similar federal statute.
"FAMILY MEMBER" shall mean an individual's spouse, natural and
adoptive children, siblings, parents and grandparents; provided that none
of the foregoing is a Competitor of the Company.
"HOLDER" means any Person listed on Exhibit A hereto who owns of
record Registrable Securities or Warrants and who has executed a
counterpart signature page to this Agreement, or any assignee of record of
Registrable Securities or Warrants held by such Person in accordance with
Section 4.3 hereof.
"MERGER AGREEMENT" shall have the meaning set forth in the recitals
hereto.
"PERSON" shall mean any individual, corporation, limited liability
company, partnership, trust or association, or any other entity or
organization, including any government entity.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of effectiveness
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) shares of Common Stock issued to
the Holders pursuant to the Merger Agreement; (ii) any Common Stock issued
upon exercise of the Warrants, to the extent permitted to be included in
the Registration Statement by the SEC; and (iii) any Common Stock issued as
a dividend or other distribution with respect to, or in exchange for or in
replacement of, such above-described securities. As to any particular
Registrable Securities, such securities shall cease to be Registrable
Securities when (a) a Registration Statement with respect to the sale of
such securities shall have become effective under the Securities Act and
shall have remained effective for the Effective Period, (b) they may be
sold by the Holder thereof pursuant to Rule 144 or any successor rule under
the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer
under the Securities Act shall have been delivered by the Company and
subsequent public distribution of them shall not require registration of
them under the Securities Act, or (d) they shall have ceased to be
outstanding.
"REGISTRATION STATEMENT" means a registration statement of the
Company, filed with the Commission on an appropriate form, including any
registration statement filed pursuant to the provisions of this Agreement,
including the prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include
a reference to the comparable section, if any, of any such similar federal
statute.
"SHELF REGISTRATION STATEMENT" shall have the meaning set forth in
Section 2.2.
"TRANSFER" shall have the meaning set forth in Section 2.1.
"WARRANTS" shall mean warrants for common stock of the Acquired
Company which were assumed by the Company pursuant to the Merger Agreement
and exercisable for shares of Common Stock.
2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any sale, offer for sale,
pledge or other disposition (collectively, a "Transfer") of all or any
portion of Registrable Securities or Warrants unless and until:
(i) There is then in effect a Registration Statement under
the Securities Act covering such proposed Transfer and such Transfer is
made in accordance with such Registration Statement; or
(ii) (A) The transferee has agreed in a letter addressed to
the Company to be bound by this Agreement, (B) such Holder shall have
notified the Company, in advance of the proposed Transfer, of the name and
address of the proposed transferee and shall have furnished the Company
with a detailed statement of the circumstances surrounding such proposed
Transfer, (C) the transferee is not a Competitor of the Company, and (D) if
requested by the Company, such Holder shall have furnished the Company with
an opinion of counsel, reasonably satisfactory to the Company, that such
Transfer will not require registration of such shares under the Securities
Act.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such Registration Statement or opinion of counsel shall be
necessary for a Transfer by a Holder to the Holder's Family Members or
trusts for the benefit of an individual Holder or such Holder's Family
Members, provided, however, that such Holder shall have notified the
Company in advance of the proposed Transfer, the name and address of the
proposed transferee, and such transferee agrees in a letter addressed to
the Company to be bound by all of the provisions of this Agreement to the
same extent as if such transferee were an original Holder hereunder.
(iv) In the case of any Transfer or exercise of a Warrant,
the Holder shall deliver evidence reasonably satisfactory to the Company
that such Holder is an "accredited investor" within the meaning of that
term as defined in Rule 501 promulgated under the Securities Act.
(b) Each certificate representing Registrable Securities or
Warrants shall be stamped or otherwise imprinted with the following
legends:
(i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED."
(ii) ANY LEGEND REQUIRED BY APPLICABLE STATE SECURITIES
LAWS.
(c) The Company shall promptly reissue certificates without the
legend specified in Section 2.1(b)(i) at the request of any Holder who has
obtained an opinion of counsel (which counsel may be counsel to the
Company, but the Company shall not be required to have its counsel deliver
such opinion) or other evidence in each case reasonably acceptable to the
Company to the effect that the Registrable Securities or Warrants proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on a certificate representing Registrable
Securities or Warrants pursuant to applicable state securities laws and the
stop-transfer instructions with respect to such Registrable Securities
shall be removed upon receipt by the Company of an order of the appropriate
blue sky authority authorizing such removal.
2.2 SHELF REGISTRATION. (a) The Company agrees to use its commercially
reasonable best efforts to file with the SEC no later than twenty (20) days
following the receipt of completed Audited Financial Statements of the
Acquired Company, a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 of the Securities Act (the "Shelf
Registration Statement") covering all of the Registrable Securities. The
Shelf Registration Statement shall be on Form S-1 under the Securities Act
or another appropriate form permitting registration of the Registrable
Securities for resale by the Holders thereof; provided that the Company may
at any time amend the Shelf Registration Statement to amend the form on
which such registration statement has been filed, so long as permitted by
applicable federal law. The Company shall use its commercially reasonable
best efforts to cause the Shelf Registration Statement to be declared
effective pursuant to the Securities Act as promptly as practicable
following the filing thereof (the "Effective Date"), and to keep the Shelf
Registration Statement effective under the Securities Act for a period of
twenty (20) business days after the Effective Date (the "Effective
Period"), or such shorter period ending upon the earlier of (i) the time
which all of the Registrable Securities covered by the Shelf Registration
Statement have been sold in the manner set forth in the Shelf Registration
Statement, or (ii) such securities otherwise cease to be Registrable
Securities as defined herein. The Company shall use commercially reasonable
efforts to obtain Audited Financial Statements of the Acquired Company
within 45 calendar days of the date of this Agreement.
(b) To the extent that the Company may file the Shelf
Registration Statement with the SEC at an earlier time than the completed
Audited Financial Statements of the Acquired Company are available, only as
permitted by and in compliance with the Securities Act in the judgment of
the Company, the Company will use commercially reasonable best efforts in
order to effect such filing; provided that the Company will not be required
to make such filing until 20 days after its Audited Financial Statements
for 1998 are available. Any filing made in accordance with this Section
2.3(b) shall satisfy the Company's obligation to file any Shelf
Registration Statement pursuant to the first sentence of Section 2.2(a)
above.
(c) No Holder may include any of its Registrable Securities in
the Shelf Registration Statement pursuant to this Agreement unless and
until such Holder furnishes to the Company in writing, as soon as
practicable after the date hereof but in no event later than five (5)
business days prior to the Effective Date, the information specified in
Item 507 or 508 of Regulation S-K promulgated under the Securities Act, as
applicable, for use in connection with the Shelf Registration Statement or
prospectus or preliminary prospectus included therein. Each selling Holder
agrees to promptly furnish such information and any additional information
required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
(d) The Company shall not be required to effect a registration as
set forth in this Section 2.2 in any particular jurisdiction in which the
Company would be required to qualify to do business as a foreign
corporation or to pay taxes wherein it would not but for the requirements
of this Agreement be obligated to be so qualified or to consent to general
service of process or pay taxes in any such state or jurisdiction effecting
such registration, qualification or compliance.
(e) The Company shall not have any further obligation under this
Section 2.2 if the Shelf Registration Statement has been effective for the
Effective Period.
(f) Each Holder shall, upon five (5) business days' notice to the
Company (or such shorter period acceptable to the Company), have the right
to withdraw from the Shelf Registration Statement provided such withdrawal
occurs prior to the Effective Date.
(g) In the event of any sale or disposition of Registrable
Securities pursuant to the Shelf Registration Statement as provided in this
Section 2.2, each Holder that has sold or disposed of Registrable
Securities thereunder will promptly notify the Company in writing of the
amount of Registrable Securities sold or disposed of by such Holder.
(h) Each Holder hereby agrees that upon expiration of the
Effective Period, such Holder will immediately discontinue any
distribution, disposition or sale of Registrable Securities pursuant to the
Shelf Registration Statement and will use reasonable efforts to assist the
Company in obtaining any withdrawal or termination of the effectiveness of
the Shelf Registration Statement, including but not limited to providing
any consents or authorizations necessary or desirable in connection
therewith.
2.3 DELAY, POSTPONEMENT AND SUSPENSION OF SALE. Notwithstanding the
provisions of Section 2.2 hereof, the Company shall have the right on one
or more occasions to delay the filing or effectiveness of the Shelf
Registration Statement, or, if the Shelf Registration Statement has become
effective, suspend the distribution or disposition of the Holders'
Registrable Securities pursuant to the Shelf Registration Statement, for
the period (the "Delay Period") specified below in the event that either
(i) the Company files a Registration Statement covering shares of Common
Stock or any other security of the Company to be issued by the Company or
for resale by other stockholders of the Company, or (ii) the Company
determines in its reasonable judgment that (a) the filing, declaration of
effectiveness or continued effectiveness of such Shelf Registration
Statement at such time would require the Company to disclose in the
Registration Statement a proposed or consummated financing, reorganization
or recapitalization, or pending or consummated negotiations relating to a
merger, consolidation, acquisition or similar transaction or other business
transaction, or other material event, which would otherwise adversely
affect the Company; or (b) pro forma and/or historical financial statements
meeting the requirements of the Securities Act as a result of any
transaction described in clause (ii)(a) above are not available at such
time. In the case of clause (i) above, the Delay Period shall begin on the
fifth (5th) business day following the date of a written notice given by
the Company to the Holders of the filing of a Registration Statement in
connection with such offering, and shall end on the closing date of such
offering, subject to any lock-up period described in Section 2.10. In the
case of clause (ii) above, the Delay Period shall begin on the date
specified in a written notice given by the Company to the Holders and shall
end upon further written notice by the Company. Any notice by the Company
pursuant to this Section 2.3 shall be given in the manner set forth in
Section 4.7. If the filing or effectiveness of the Shelf Registration
Statement is delayed or the right of Holders to distribute or dispose of
Registrable Securities pursuant to the Shelf Registration Statement is
suspended by the Company as set forth in this Section 2.3, the Company
shall use its commercially reasonable best efforts to file and cause to be
declared effective, or reinstate the Holders' ability to distribute or
dispose of Registrable Securities pursuant to, the Shelf Registration
Statement within ten (10) business days following the expiration of any
Delay Period applicable to clause (i) above, subject to any lock-up period
described in Section 2.10, and within five (5) business days following the
expiration of any Delay Period applicable to clause (ii) above; provided
that in either case any necessary financial statements are available for
filing. The Company shall not be deemed to be in breach of its obligations
pursuant to Section 2.2, 2.6(a) or otherwise pursuant to this Agreement due
to the commencement or continuation of any Delay Period resulting from any
of the events referred to in clauses (i) or (ii) above. The parties
acknowledge that, in the case of clauses (i) or (ii) above, the Company
shall use commercially reasonable efforts to limit any Delay Period to a
reasonable period of time following the availability of any financial
statements required to be included in the Registration Statement and the
making of any public disclosure as a result of any negotiation or the
entering into of any transaction of the nature referred to in such clause.
2.4 PIGGYBACK REGISTRATIONS. No Holder shall have the right to include
any Registrable Securities in any other Registration Statement filed or
proposed to be filed by the Company. Additionally, no stockholder of the
Company other than a Holder shall have the right to include their
securities of the Company in, or otherwise participate in, the Shelf
Registration Statement. All of the Registrable Securities shall be
entitled, at the option of the Holders thereof, to be included in the Shelf
Registration Statement so long as such Holder complies with the provisions
of this Agreement.
2.5 REGISTRATION EXPENSES. (a) All expenses incident to the Company's
performance of or compliance with this Agreement shall be borne by the
Company, regardless of whether the Shelf Registration Statement becomes
effective, including without limitation:
(i) all registration and filing fees and expenses;
(ii) fees and expenses relating to compliance with federal
securities and state "blue sky" securities laws;
(iii) expenses of printing (including printing certificates
for the Registrable Securities and prospectuses), messenger and delivery
services and telephone charges;
(iv) fees and disbursements of counsel for the Company and
fees and disbursements of up to $10,000 for one counsel (which shall be
Perkins Coie LLP unless other counsel is appointed by the Holders of a
majority of the Registrable Securities) for all of the Holders of the
Registrable Securities selling such securities pursuant to the Shelf
Registration Statement;
(v) all application and filing fees in connection with
listing the Registrable Securities on a national securities exchange or
automated quotation system pursuant to the requirements hereof;
(vi) all fees and disbursements of independent certified
public accountants of the Company (including the expenses of any special
audit required by or incident to such performance); and
(vii) such other reasonable and customary expenses as may be
at such time (A) associated with shelf registration offerings and (B)
customarily borne by the issuer, which such reasonable and customary
expenses shall not be deemed to include any underwriter or agent discounts,
commissions or applicable transfer taxes attributable to the sale of
Registrable Securities.
The Company shall, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers
and employees performing legal or accounting duties), the expense of any
annual audit, and the fees and expenses of any Person, including special
experts, retained by the Company. Notwithstanding the provisions of this
Section 2.5, each Holder shall pay registration expenses if and to the
extent required by applicable law.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities pursuant to this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Use commercially reasonable efforts to keep the Shelf
Registration Statement effective for the Effective Period, subject to its
right to invoke any Delay Period, and provide all requisite financial
statements required by such Shelf Registration Statement for such Effective
Period, subject to any Delay Period and other rights and provisions of
Section 2.3. Subject to any Delay Period and the other terms and provisions
set forth in Section 2.3, upon the occurrence of any event that would cause
the Shelf Registration Statement or the prospectus contained therein (i) to
contain a material misstatement or omission or (ii) not to be effective and
usable for resale of Registrable Securities during the Effective Period
(other than pursuant to Section 2.3), the Company shall promptly file an
appropriate amendment to such Shelf Registration Statement, (A) in the case
of clause (i), correcting any such misstatement or omission, and (B) in the
case of clauses (i) and (ii), using its commercially reasonable efforts to
cause such amendment to be declared effective and such Shelf Registration
Statement and the related prospectus to become usable for their intended
purpose(s) as soon as commercially practicable thereafter;
(b) Prepare and file with the SEC such amendments and
post-effective amendments to the Shelf Registration Statement as may be
necessary to keep the Shelf Registration Statement effective for the
duration of the Effective Period; cause the prospectus to be supplemented
by any required prospectus supplement, and as so supplemented, to be filed
pursuant to Rule 424, and to comply fully with Rules 424 and 430A of the
Securities Act, as applicable, in a timely manner; and otherwise comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Shelf Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof as set forth in such Shelf Registration
Statement or supplement to the prospectus;
(c) Furnish to counsel for the selling Holders named in any Shelf
Registration Statement or prospectus, before filing with the SEC, copies of
any Shelf Registration Statement or any prospectus included therein or any
amendments or supplements to any such Shelf Registration Statement or
prospectus, which documents will be subject to the review and comment of
counsel for such Holders for a period of time as is reasonably appropriate
under the circumstances, determined in the sole discretion of the Company
(it being acknowledged that such period shall be at least three (3)
business days in the case of an initial draft of the Shelf Registration
Statement and such shorter time as may be appropriate in the case of any
supplements or amendments thereto), and the Company agrees to reasonably
consider such comments in preparing the filing of any such Shelf
Registration Statement or prospectus or any amendment or supplement to any
such Shelf Registration Statement or prospectus (including all such
documents incorporated by reference);
(d) Furnish (without charge) to counsel for the selling Holders,
one copy of the Registration Statement, each amendment and supplement
thereto (in each case including all exhibits) and furnish to the Holders
such number of copies of the prospectus included in such Registration
Statement, including each preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(e) Use all reasonable commercial efforts to register or qualify
the Registrable Securities covered by such Registration Statement under
such securities or blue sky laws of such States of the United States of
America where any exemption is not available as shall be reasonably
requested by the Holders, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify generally to
do business as a foreign corporation, to pay taxes in any jurisdiction
where it would not but for the requirements of this Agreement be obligated
to be so qualified, to consent to general service of process or to pay
taxes in any such state or jurisdiction;
(f) Promptly notify counsel for the Holders selling Registrable
Securities covered by such Registration Statement: (i) when the
Registration Statement, any pre-effective amendment, the prospectus or any
prospectus supplement related thereto or post-effective amendment to the
Registration Statement has been filed and, with respect to the Registration
Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the SEC or state securities authority for
amendments or supplements to the Registration Statement or the prospectus
related thereto or for additional information; (iii) of the issuance by the
SEC of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for such purpose; (iv) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of any Registrable Securities for sale
under the securities or blue sky laws of any jurisdiction or the initiation
of any proceeding for such purpose; and (v) at any time when a prospectus
relating to the Shelf Registration Statement is required to be delivered
under the Securities Act, upon discovering that, or upon the happening of
any event as a result of which, the prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, in the
light of the circumstances under which they were made, and in the case of
this clause (v), the Company will, subject to the other terms of this
Agreement, promptly prepare and furnish to the Holders participating in the
offering of the Registrable Securities, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
under which they were made;
(g) Comply with all applicable rules and regulations of the SEC,
and make generally available to the Holders, as soon as reasonably
practicable after the effective date of the Shelf Registration Statement
(and in any event within sixteen (16) months thereafter), an earnings
statement (which need not be audited) covering the period of at least
twelve (12) consecutive months beginning with the first day of the
Company's first calendar quarter after the effective date of the Shelf
Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(h) Cause all Registrable Securities covered by the Shelf
Registration Statement to be listed on the Nasdaq National Market or other
principal securities exchange on which similar securities issued by the
Company are then listed, if the listing of such Registrable Securities is
then permitted under the rules of such exchange;
(i) Provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such Registration
Statement not later than the effective date of such Registration Statement;
and
(j) Cooperate with the selling Holders of Registrable Securities
to facilitate the timely preparation and delivery of certificates not
bearing any restrictive legends representing the Registrable Securities to
be sold, and cause such Registrable Securities to be issued in such
denominations and registered in such names in accordance with the
instructions of the selling Holders of Registrable Securities.
Each Holder agrees that if the Shelf Registration Statement shall have
been declared effective, upon the giving of any notice from the Company of
the happening of any event of the kind described in Section 2.6(f)(v), or
the giving of notice by the Company of the invocation of any Delay Period
pursuant to Section 2.3, such Holder will discontinue such Holder's
disposition of Registrable Securities pursuant to the Shelf Registration
Statement covering such Registrable Securities until (A) in the case of
Section 2.6(f)(v), such Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by such Section and, if so directed by
the Company, such Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such
Holder's possession, of the prospectus covering such Registrable Securities
that was in effect at the time of receipt of such notice, and (B) in the
case of any Delay Period pursuant to Section 2.3, until the expiration of
such period or as otherwise provided in Section 2.3. Following the end of
any restriction on disposition pursuant to Section 2.6(f)(v) or Section 3,
the Shelf Registration Statement shall remain effective for a period equal
to the greater of (i) 5 business days, or (ii) such greater number of
business days as determined by the difference of (x) 20, less (y) the
number of business days for which Holders have been able to sell without
restriction under the Shelf Registration Statement prior to any notice
delivered pursuant to Section 2.6(f)(v) or Section 3.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted to a Holder under this Section 2 shall terminate and be of no
further force and effect upon the earlier of: (i) such time as the
securities of the Company held by a Holder cease to be Registrable
Securities, as defined herein, and (ii) such time as the Effective Period
shall have expired.
2.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under Section 2.2:
(a) Indemnification by the Company. To the extent permitted by
law, the Company will indemnify and hold harmless each Holder, the
partners, officers and directors of each Holder, if any, who control such
Holder within the meaning of the Securities Act or the Exchange Act,
against any and all losses, claims, damages, liabilities or expenses
whatsoever as incurred (including but not limited to reasonable attorneys'
fees and any and all reasonable expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they may
become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company shall not be
liable in any case to the extent that any loss, claim, damage, liability or
expense (or action or proceeding in respect thereof) arises out of or is
based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by such Holder, partner, officer,
director, or controlling person of such Holder, and provided, further, that
the Company shall not be liable to any Person who participates in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such Person, in any such case if any such loss, claim, damage,
liability or expense (or action or proceeding in respect thereof) arises
out of such Person's failure to send or give a copy of the final prospectus
or amendment or supplement thereto, as the same may be then supplemented or
amended, to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus so long as
such final prospectus, and any amendments or supplements thereto, have been
furnished to such Person participating in the offering or sale of
Registrable Securities.
(b) Indemnification by the Holders. To the extent permitted by
law, each Holder will, if Registrable Securities held by such Holder are
included in such Registration Statement, indemnify and hold harmless the
Company, each of its directors, its officers, and each Person, if any, who
controls the Company within the meaning of the Securities Act, and any
other Holder selling securities under such Registration Statement or any of
such other Holder's partners, directors or officers, if any, who control
such Holder, against any losses, claims, damages, liabilities or expenses
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), severally, to
which the Company or any such director, officer, controlling Person, or
other such Holder, partner, director, or officer, if any, or controlling
such other Holder may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for
registration of the Registrable Securities, or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent (and only to the extent)
that such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for use in
connection with such registration; provided, however, that in no event
shall any indemnity under this Section 2.9 exceed the net proceeds from the
offering received by such Holder.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
2.9, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of
this Section 2.9, except to the extent that the indemnifying party is
prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and, to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof.
Notwithstanding the foregoing, the indemnified party shall have the right
to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action, (ii) the
indemnifying party shall not have employed counsel to have charge of the
defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to direct
the defense of such action on behalf of the indemnified party), in any of
which events such fees and expenses shall be borne by the indemnifying
party. In no event shall the indemnifying party be liable for fees and
expenses of more than one counsel (in addition to any local counsel)
separate from its own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
and which counsel shall be approved by the indemnifying party, whose
approval shall not be unreasonably withheld. No indemnifying party shall be
liable for any settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in
respect of such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section 2.9 is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any losses, claims, damages,
liabilities or expenses (including but not limited to attorneys' fees and
any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, of the nature contemplated by such
indemnification provision, the indemnifying party, in lieu of indemnifying
such indemnified party thereunder, shall to the extent permitted by
applicable law contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or expense (or
action or proceeding in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof), as
well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or
by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission; provided that, in no event shall any contribution by a Holder
hereunder exceed the net proceeds from the offering received by such
Holder. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be
unreasonably withheld.
(e) Survival of Indemnification. The obligations of the Company
and the Holders under this Section 2.9 shall survive completion of any
offering of Registrable Securities in a Registration Statement pursuant to
Section 2.2.
(f) Other Indemnification. Indemnification and contribution
similar to that specified in the preceding subdivisions of this Section 2.9
(with appropriate modifications) shall be given by the Company and each
seller of Registrable Securities with respect to any required registration
or other qualification of securities under any federal or state law or
regulation of any governmental authority other than the Securities Act.
2.10 "MARKET STAND-OFF" AGREEMENT. In the case of any underwritten
public offering by the Company of shares of Common Stock, whether for its
own account or for the account of any stockholder of the Company, each
Holder agrees that, during a period of seven (7) days prior to and ninety
(90) days following the effective date of a Registration Statement filed in
connection with such offering, such Holder will not, without the prior
written consent of the Company, directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant for the
sale of, or otherwise dispose of or transfer any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for Common
Stock, whether now owned or hereafter acquired by such Holder or with
respect to which such Holder has or hereafter acquires the power of
disposition, or enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Stock, whether any such
swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise. The Company shall give notice of such
restriction in the manner set forth in Section 4.7. Upon the request of the
underwriters for any underwritten public offering of Common Stock of the
Company referred to above, each Holder hereby agrees to deliver a "lock-up"
or "market stand-off" agreement signed by such Holder which is equivalent
in substance to the agreement set forth in this Section 2.10 addressed to
such underwriter. Any such underwriter shall expressly be deemed to be a
third party beneficiary of this Section 2.10.
The obligations described in this Section 2.10 shall not apply to a
registration relating solely to employee benefit plans or similar forms
that may be promulgated in the future, or a registration relating solely to
a Rule 145 transaction (including the registration for resale of securities
issued in a Rule 145 transaction) on Form S-4 under the Securities Act or
similar forms that may be promulgated in the future, unless in any such
case such registration is in connection with an underwritten public
offering. The Company may impose stop-transfer instructions with respect to
the shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of such restrictive period.
2.11 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its commercially reasonable best
efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act; and
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act.
3. CONFIDENTIALITY.
(a) Each Holder agrees not to disclose to any third party or use
Confidential Information (as hereinafter defined) of the Company for its
own use or for any purpose except to evaluate and enforce its current
equity investment in the Company. Each Holder shall undertake to treat such
Confidential Information in a manner consistent with the treatment of its
own information of similar proprietary nature and agrees that it shall
protect the confidentiality of Confidential Information. Each transferee of
any Holder who receives Confidential Information shall agree to be bound by
such provisions.
(b) "Confidential Information" means any notices given by the
Company pursuant to the terms of this Agreement and any other information
disclosed by the Company either directly or indirectly in a writing stamped
"Confidential" or "Proprietary" or, if disclosed orally, which is promptly
confirmed in writing to be Confidential Information. Confidential
Information does not include information, technical data or know-how which
(i) is generally known or publicly available not as a result of any action
or inaction of a Holder; (ii) is disclosed to a Holder on a
non-confidential basis by a third party having a legal right to disclose
such information; or (iii) is approved for release by written authorization
of the Company. The provisions of this Section shall not apply to the
extent that a Holder is required to disclose Confidential Information
pursuant to any law, statute, rule or regulation or any legal process or
order of any court, provided that the Holder shall notify the Company of
any such required disclosure as promptly as possible and shall cooperate
with the Company in order to limit the scope of any order or service of
legal process requiring disclosure of such Confidential Information.
4. GENERAL.
4.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York without giving effect to conflicts
of laws principles. Each of the parties to this Agreement hereby
irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and the courts of the
United States of America located in the Southern District of the State of
New York for any action, claim or proceeding arising out of or relating to
this Agreement (and agrees not to commence any action, claim or proceeding
relating hereto except in such courts), and further agrees that service of
any process, summons, notice or document by U.S. registered mail to its
respective address shall be effective service of process for any action,
claim or proceeding brought against it in any such court. Each of the
parties to this Agreement hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, claim or proceeding arising
out of this Agreement in the courts of the State of New York or the courts
of the United States of America located in the State of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, claim or proceeding brought
in any such court has been brought in an inconvenient forum. Each of the
parties hereto hereby irrevocably and unconditionally waives any right it
may have to trial by jury in connection with any action, claim or
proceeding arising out of or relating to this Agreement.
4.2 SURVIVAL. The provisions of Section 2.9 and Section 3 hereof shall
survive any termination of this Agreement
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
Person who shall be a Holder from time to time in accordance with the terms
of this Agreement.
4.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
4.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided herein, this Agreement
may be amended or modified and the observance of any provision hereof may
be waived (either generally or in a particular instance and either
retroactively or prospectively) upon the written consent of the Company and
the Holders of at least a majority in interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this
Section 4.5 shall be binding upon each Holder and the Company.
(b) Except as otherwise expressly provided herein, the
obligations of the Company and the rights of the Holders under this
Agreement may be waived only with the written consent of at least a
majority in interest of the Registrable Securities.
(c) This Agreement may be amended only with the written consent
of the Company to include any additional party as a "Holder."
4.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on any Holder's part of any breach,
default or noncompliance under this Agreement or any waiver on such
Holder's part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, by law or
otherwise afforded to Holders, shall be cumulative and not alternative.
4.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed facsimile if sent
during normal business hours of the sender; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on Exhibit A
hereto or at such other address as such party may designate in writing to
the Company in accordance with this Section 4.7 by ten (10) days' advance
written notice to the other parties hereto.
4.8 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
4.9 HEADINGS. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be
considered in construing the intent of this Agreement.
4.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all previous negotiations, agreements and
arrangements made between the parties with respect to such subject matter.
4.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4.12 THIRD-PARTY BENEFICIARIES. This Agreement shall inure to the
benefit of and be binding upon the Company and each of the other
signatories hereto and their respective successors and assigns. The
underwriter for an underwritten public offering of the Company, as
described in Section 2.10, shall be expressly deemed to be a third-party
beneficiary of the provisions of such Section. Other than as expressly set
forth in this paragraph, no other party will be considered a third-party
beneficiary of any rights or benefits created under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date set forth in the first paragraph hereof.
COMPANY: HOLDER:
THEGLOBE.COM, INC.
By: By:
------------------------------ ------------------------------
Todd V. Krizelman
Co-Chief Executive Officer
By:
------------------------------
Stephan J. Paternot
Co-Chief Executive Officer
<PAGE>
EXHIBIT A
SCHEDULE OF HOLDERS
Name Address Telephone and Facsimile
EXHIBIT 9.1
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of February 14,
1999, by and among theglobe.com, inc., a Delaware corporation (the
"Company"), Michael S. Egan, Dancing Bear Investments, Inc., a Florida
corporation ("DBI" and, together with Michael S. Egan, "Dancing Bear"),
Todd V. Krizelman, Stephan J. Paternot, Edward A. Cespedes and Rosalie V.
Arthur.
WHEREAS, Dancing Bear held warrants (the "Warrants") to purchase an
aggregate of 2,023,009 shares of common stock of the Company, par value
$.001 per share (the "Common Stock").
WHEREAS, Dancing Bear has transferred Warrants exercisable for
100,000, 100,000, 25,000 and 25,000 shares of Common Stock to Todd V.
Krizelman, Stephan J. Paternot, Edward A. Cespedes and Rosalie V. Arthur
(collectively referred to herein as the "Holders"), respectively;
WHEREAS, the parties hereto wish to provide certain restrictions on
the disposition by the Holders of any Warrants held by them and any shares
of Common Stock for which such Warrants may be exercised (the "Warrant
Shares");
WHEREAS, the parties wish to provide for certain arrangements with
respect to the voting of the Warrant Shares in the event the Warrants held
by the Holders are exercised; and
WHEREAS, Messrs. Krizelman and Paternot and Dancing Bear wish to
provide for certain arrangements with respect to the voting of any shares
of Stock held by them.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions.
For purposes of this Agreement, the following terms shall have the
meanings indicated:
"Acceptance Notice" shall have the meaning given to it in Section 7
hereof.
"Agreement" shall have the meaning given to it in the preamble hereto.
"Beneficially Own" shall have the meaning ascribed thereto in Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
"Board" shall mean the Board of Directors of the Company and any
authorized committee thereof.
"Buyer" shall have the meaning given to it in Section 8 hereof.
"Cause" shall mean with respect to an individual (i) conduct that is
fraudulent or unlawful, (ii) gross negligence or willful misconduct that
discredits or damages the Company, (iii) willful and repeated failure to
perform such individual's duties and such failure to perform adversely
affects the Company, (iv) such individual has become the subject of any
order, judgment, or decree of any court or regulatory authority of
competent jurisdiction which is final and non-appealable, permanently or
temporarily enjoining him or her from engaging in any activity in
connection with the purchase or sale of any security or commodity, or in
connection with any violation of federal or state securities laws or
federal commodities laws, or (v) such individual is found by a court of
competent jurisdiction in a civil action or by the SEC to have violated any
federal or state securities laws, and the judgment in such civil action or
finding by the SEC has not been subsequently reversed, suspended, or
vacated.
"Closing Date" shall have the meaning given to it in Section 7 hereof.
"Common Stock" shall have the meaning given to it in the recitals
hereto.
"Company" shall have the meaning set forth in the preamble hereto.
"Controlled Person" shall mean a Person in which a Holder or Dancing
Bear Beneficially Owns a controlling interest, or a Person which
Beneficially Owns a controlling interest in Dancing Bear.
"Dancing Bear" shall have the meaning given to it in the preamble
hereto.
"Dancing Bear Nominee" shall have the meaning given to it in Section 5
hereof.
"DBI" shall have the meaning given to it in the preamble hereto.
"Diluted Capital Stock" shall mean issued and outstanding shares of
Common Stock (assuming the Warrants have been exercised).
"Founder Nominees" shall have the meaning given to it in Section 5
hereof.
"Holders" shall have the meaning given to it in the recitals hereto
and shall include any other party deemed a "Holder" pursuant to Section 2
or 3 hereof.
"Offered Securities" shall have the meaning given to it in Section 7
hereof.
"Offering Notice" shall have the meaning given to it in Section 7
hereof.
"Options" shall mean options exercisable for Common Stock.
"Permitted Transfer" shall mean a Transfer of Stock, Warrants or
Warrant Shares (i) by a Holder or Dancing Bear to a Controlled Person, or
(ii) by a Holder or Mr. Egan, while living, to such Holder's or Mr. Egan's
respective spouse or children or to a trust or trusts for the benefit of
such Holder's or Mr. Egan's respective spouse, children or their issue,
siblings, or parents or, at death, by will, trust or the laws of intestacy.
As a condition to any such Transfer, the transferee shall execute an
instrument in form and substance satisfactory to the Company agreeing to be
bound by the terms of this Agreement as if an original signatory hereto,
and shall execute such further documents, proxies or stock transfer powers
as may be necessary or desirable to implement the provisions hereof.
"Permitted Transferee" shall mean a Person who receives Stock,
Warrants or Warrant Shares in a Permitted Transfer.
"Person" means an individual, a corporation, a joint venture, a
partnership, a limited liability company, a firm, an association, a
business trust or any other entity.
"Preferred Stock" shall mean the preferred stock of the Company, par
value $.001 per share.
"Prospective Buyer" shall have the meaning given to it in Section 7
hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Selling Holder" shall have the meaning given to it in Section 7
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock" shall mean the Common Stock, the Preferred Stock and any other
series or class of capital stock of the Company, the holders of which are
entitled to participate generally in the election of members of the Board.
"Tag-Along Notice" shall have the meaning given to it in Section 9
hereof.
"Take-Along Notice" shall have the meaning given to it in Section 8
hereof.
"Take Along Right" shall have the meaning given to it in Section 8
hereof.
"Transfer" means to sell, assign, donate, gift, convey, transfer,
pledge, encumber, hypothecate, grant any option with respect to or
otherwise dispose of any interest in (or enter into any agreement or
understanding with respect to) any of the foregoing.
"Warrants" shall have the meaning given to it in the recitals hereto.
"Warrant Shares" shall have the meaning given to it in the recitals
hereto.
Section 2. Warrants and Warrant Shares Subject to Agreement. Each of
the Holders hereby agrees that, except as may otherwise be provided herein,
this Agreement shall apply to any Warrants Transferred to such Holder by
Dancing Bear on or prior to the date of this Agreement and to any Warrant
Shares that may be issued to any such Holder and shall continue to apply to
any Warrants and Warrant Shares Transferred by such Holder to any Permitted
Transferee. Unless otherwise provided herein, as a condition to the
transfer of Warrants or Warrant Shares to any Permitted Transferee, all
such Permitted Transferees shall expressly become parties to this
Agreement, shall be subject to the same rights and restrictions as the
Holders and, unless the context indicates otherwise, all references to
"Holder" or "Holders" herein shall include such transferees.
Section 3. Stock Subject to Agreement. Each of the Holders and Dancing
Bear hereby agrees that, except as may otherwise be provided herein, this
Agreement shall apply to any Stock currently held by them on the date
hereof, any Stock subsequently acquired by them whether by purchase,
option, gift, bequest or otherwise, or any Stock Transferred by them to a
Permitted Transferee. Unless otherwise provided herein, as a condition to
the transfer of warrant or warrant Shares to any Permitted Transferee, all
such Permitted Transferees shall expressly become parties to this
Agreement, shall be subject to the same rights and restrictions as Dancing
Bear or the Holders, as applicable, and, unless the context indicates
otherwise, all references to "Holder" or "Holders" herein shall include
such transferees.
Section 4. Transfers of Warrants and Warrant Shares. No Holder shall
Transfer all or any part of his or her Warrants or Warrant Shares without
the prior written consent of Dancing Bear, except (i) to a Permitted
Transferee of such Holder, or (ii) as expressly permitted by Section 7
hereof.
Section 5. Board Representation.
(a) Board of Directors. Each of Messrs. Egan, Krizelman and Paternot
agree not to vote to decrease the number of directors on the Board to be
less than nine members without the prior written consent of the others.
Nominees for election to the Board shall be designated as follows: (i)
Dancing Bear (or its Permitted Transferees) shall, subject to applicable
law, have the right to designate up to five nominees to the Board (each
such designee being hereinafter referred to as a "Dancing Bear Nominee");
and (ii) Messrs. Krizelman and Paternot (or their Permitted Transferees)
shall, subject to applicable law, collectively have the right to designate
up to two individuals for nomination to the Board (such designees being
hereinafter referred to as the "Founder Nominees"). Each of Dancing Bear
and Messrs. Krizelman and Paternot (and their respective Permitted
Transferees) shall vote, or cause to be voted, all shares of Stock
Beneficially Owned by them at any regular or special meeting of
stockholders called for the purpose of filling positions on the Board, or
in any written consent executed in lieu of such a meeting of stockholders,
in favor of the election of each Dancing Bear Nominee and each Founder
Nominee. Dancing Bear and Messrs. Krizelman and Paternot (or their
respective Permitted Transferees) shall not vote to remove any member of
the Board elected in accordance with the foregoing provisions except for
Cause or with respect to any person nominated by such Person.
Notwithstanding the foregoing, each of Dancing Bear and Messrs. Krizelman
and Paternot (or their respective Permitted Transferees) shall vote, or
cause to be voted, all shares of Stock Beneficially Owned by it or him in
favor of the removal of any Dancing Bear Nominee, upon the request of
Dancing Bear, or any Founder Nominee, upon the request of Messrs. Krizelman
and Paternot.
(b) Replacement Directors. If following election to the Board, any
Dancing Bear Nominee or Founder Nominee shall resign, be removed, or be
unable to serve for any reason prior to the expiration of his or her term
as a director of the Company, Dancing Bear (or its Permitted Transferees)
in the case of a Dancing Bear Nominee, or Messrs. Krizelman and Paternot
(or their Permitted Transferees) in the case of a Founder Nominee
(following the same procedure for designating such nominees set forth in
Section 5(a)), shall be entitled to designate a replacement nominee.
Following such designation, each of Dancing Bear and Messrs. Krizelman and
Paternot (and their respective Permitted Transferees) shall vote, or cause
to be voted, all shares of Stock Beneficially Owned by them in favor of the
election to the Board of such replacement nominee at any special meeting of
stockholders called for such purpose, or in any written consent executed in
lieu of such a meeting.
(c) Further Action. In order to effectuate the provisions of this
Section 5, each of Dancing Bear and Messrs. Krizelman and Paternot (and
their respective Permitted Transferees) agrees that, in addition to voting,
or causing to be voted, all shares of Stock Beneficially Owned by it or him
in favor of the election to the Board of each Dancing Bear Nominee, each
Founder Nominee, and any replacement nominee designated in accordance with
Section 5(b) hereof, such party will take, or use such party's best efforts
to cause to be taken, all such further action which they may take in their
capacity as stockholders of the Company and as may be necessary to ensure
the election of such nominees to the Board; provided, however, that no
party shall be required to solicit the vote of any other stockholder of the
Company.
Section 6. Voting of Warrant Shares. Each Holder hereby grants to
Dancing Bear an irrevocable proxy to vote all Warrant Shares for which any
Warrants held by them have been exercised, with full power of substitution,
in Dancing Bear's full discretion for all matters subject to stockholder
vote. Each Holder acknowledges that this proxy is coupled with an interest
and agrees not to give any other proxy or proxies in derogation of this
proxy as long as this Agreement is in force. Such proxy shall remain in
effect with respect to each Warrant or Warrant Share held by a Holder until
such time as a Holder has Transferred such Warrant or Warrant Share
pursuant to Section 7 hereof to a third party (other than a Permitted
Transferee).
Section 7. Right of First Refusal for Warrants and Warrant Shares.
(a) If at any time any Holder or any Permitted Transferee of a Holder
desires to Transfer Warrants or Warrant Shares (a "Selling Holder") in a
bona fide arm's-length transaction to any third party (a "Prospective
Buyer") (other than (x) in a Permitted Transfer, (y) pursuant to a
registration statement under the Securities Act or (z) in a sale pursuant
to Rule 144 under the Securities Act (or any successor provision) effected
through the Nasdaq National Market or any other national securities
exchange on which the Common Stock is listed; provided that a Holder may
only use the exceptions under (x) and (y) if he or she does not own any
other shares of Stock which could otherwise be transferred), the Selling
Holder shall give written notice thereof (an "Offering Notice") to Dancing
Bear. The Offering Notice shall state (i) the number of Warrants or Warrant
Shares proposed to be sold (the "Offered Securities"), (ii) the name and
address of the Prospective Buyer, (iii) the price per Offered Security
(which shall be payable in cash) at which the Selling Holder has a
reasonable and bona fide intention to Transfer the Offered Securities to
the Prospective Buyer (which may be the market price in the case of a
public sale), and (iv) the method of payment and other terms and conditions
of the proposed Transfer.
(b) Dancing Bear (or its Permitted Transferees) shall have the
irrevocable option, but not an obligation, to purchase from the Selling
Holder all, but not less than all, of the Offered Securities. To exercise
such option, Dancing Bear shall, within 20 business days of its receipt of
the Offering Notice, deliver to the Selling Holder a notice of its
intention to exercise such option (an "Acceptance Notice"). By so
delivering an Acceptance Notice, Dancing Bear shall be committed to
exercise such option and purchase the Offered Securities at the per
security purchase price specified in the Offering Notice. The exercise of
such option and the purchase and sale of the Offered Securities resulting
from the exercise of such option shall take place at the principal offices
of Dancing Bear on the fifth business day following the date of delivery of
the Acceptance Notice, or at such other place, on such other date, or both,
as the Selling Holder and Dancing Bear shall agree upon in writing (the
"Closing Date"). On the Closing Date, the Selling Holder shall deliver (i)
the certificate(s) representing the number of Offered Securities to Dancing
Bear (or its Permitted Transferees) in proper form for transfer with
appropriate stock powers executed in blank attached and with all
documentary or transfer tax stamps affixed, (ii) a certificate representing
that Dancing Bear (or its Permitted Transferees) will receive good title to
the securities represented by such certificate(s), free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts (other than this Agreement), against payment
of the purchase price therefor by a wire transfer of funds to a bank
account designated by the Selling Holder or by certified or official bank
check or checks, and (iii) a legal opinion relating to such matters as may
be reasonably requested by Dancing Bear.
(c) If Dancing Bear (or any of its Permitted Transferees) does not
elect to purchase the Offered Securities, the Selling Holder shall be free,
during the 30-day period commencing on the date the option granted pursuant
to this Section 7 expires unexercised, to Transfer all but not less than
all of the Offered Securities to the Prospective Buyer at a per security
price that shall not be less than the price specified in the Offering
Notice. After such 30-day period, the Selling Holder shall not sell any
Warrants and Warrant Shares without again complying with the provisions of
this Section 7.
Section 8. Take-Along Right for Stock.
(a) If at any time Dancing Bear (or any of its Permitted Transferees)
proposes to sell or exchange (in a business combination or otherwise) in
one or a series of related or contemporaneous bona fide arm's-length
transactions to any third party (a "Buyer") (other than (x) in a Permitted
Transfer, (y) pursuant to a registration statement under the Securities Act
or (z) in a sale pursuant to Rule 144 under the Securities Act (or any
successor provision) effected through the Nasdaq National Market or any
other national securities exchange on which the Common Stock is listed),
shares of Stock (including Stock issued upon exercise of Options at or
prior to the consummation of such transaction), Warrants or Warrant Shares
that equal or exceed 25% in the aggregate of the Diluted Capital Stock of
the Company, then, subject to the last sentence of this paragraph, Dancing
Bear (or its Permitted Transferees) shall have the right (a "Take-Along
Right") to require each Holder and such Holder's Permitted Transferees to
sell or exchange up to the same percentage of the Diluted Capital Stock
then Beneficially Owned by such Holder (or such Permitted Transferee) as is
set forth in the Take-Along Notice (defined below) given by Dancing Bear,
in such transaction or series of related or contemporaneous transactions,
on the same terms and subject to the same conditions (including but not
limited to obligations with respect to indemnification) as the sale or
exchange by Dancing Bear (and its Permitted Transferees). To exercise a
Take-Along Right, Dancing Bear shall give written notice thereof (a
"Take-Along Notice") to each Holder and such Holder's Permitted
Transferees. The Take-Along Notice shall state (i) the name and address of
such Buyer, (ii) the price per security and the form of consideration that
such Buyer proposes to pay for the purchased securities, (iii) the
percentage of Diluted Capital Stock Beneficially Owned by Dancing Bear (and
its Permitted Transferees) that is being sold or exchanged, and (iv) the
method of payment and other terms and conditions of the proposed sale or
exchange.
(b) The exercise of any Take-Along Right and the purchase and sale of
Stock, Warrants and Warrant Shares resulting from the exercise of such
Take-Along Right shall take place at the principal offices of Dancing Bear
on the fifth business day following the date of delivery of any Take-Along
Notice, or at such other place, on such other date, or both, as the
aforementioned Buyer and Dancing Bear shall agree upon in writing.
Section 9. Tag-Along Rights for Stock.
(a) If at any time Dancing Bear (or any of its Permitted Transferees)
proposes to sell or exchange (in a business combination or otherwise) in
one or a series of related or contemporaneous bona fide arm's-length
transactions to any Buyer (other than (x) in a Permitted Transfer, (y)
pursuant to a registration statement under the Securities Act or (z) in a
sale pursuant to Rule 144 under the Securities Act (or any successor
provision) effected through the Nasdaq National Market or any other
national securities exchange on which the Common Stock is listed), shares
of Stock (including Stock issued upon exercise of Options at or prior to
the consummation of such transaction), Warrants or Warrant Shares that
equal or exceed 25% of the Diluted Capital Stock of the Company, Dancing
Bear shall so notify (a "Tag-Along Notice") each Holder and such Holder's
Permitted Transferees. The Tag-Along Notice shall state (i) the name and
address of such Buyer, (ii) the price per security and the form of
consideration that such Buyer proposes to pay for the purchased Stock,
Warrants or Warrant Shares, (iii) the percentage of the Diluted Capital
Stock Beneficially Owned by Dancing Bear (and its Permitted Transferees)
that is being sold or exchanged, and (iv) the method of payment and other
terms and conditions of the proposed sale or exchange. Each Holder and such
Holder's Permitted Transferees shall have the option, exercisable by
written notice to Dancing Bear, within 10 days after Dancing Bear (a
"Tag-Along Period") delivers a Tag-Along Notice stating its intention to
effect such sale or exchange, to sell or exchange up to the same percentage
of the Diluted Capital Stock Beneficially Owned by such Holder and such
Holder's Permitted Transferees as is stated in the Tag-Along Notice
delivered by Dancing Bear, in such transaction or series of related or
contemporaneous transactions on the same terms and subject to the same
conditions (including but not limited to obligations with respect to
indemnification) as the sale or exchange by Dancing Bear (and its Permitted
Transferees), and, if such option is exercised, Dancing Bear (and its
Permitted Transferees) shall not proceed with such sale or exchange unless
any Holder who has exercised such option is given the right to so
participate.
(b) If at any time Mr. Krizelman or Mr. Paternot (or any of either's
Permitted Transferees), individually or collectively, proposes to sell or
exchange (in a business combination or otherwise) in one or a series of
related or contemporaneous bona fide arm's-length transactions to any Buyer
(other than (x) in a Permitted Transfer, (y) pursuant to a registration
statement under the Securities Act or (z) in a sale pursuant to Rule 144
under the Securities Act (or any successor provision) effected through the
Nasdaq National Market or any other national securities exchange on which
the Common Stock is listed), shares of Stock (including Stock issued upon
exercise of Options at or prior to the consummation of such transaction),
Warrants or Warrant Shares that equal or exceed 7% of the Diluted Capital
Stock of the Company, Messrs. Krizelman and Paternot shall deliver a
Tag-Along Notice to Dancing Bear, each other Holder and such parties'
Permitted Transferees. The Tag-Along Notice shall state (i) the name and
address of the Buyer, (ii) the price per security and the form of
consideration that the Buyer proposes to pay for the purchased Stock,
Warrants or Warrants Shares, (iii) the collective percentage of the Diluted
Capital Stock owned by both Messrs. Krizelman and Paternot (and their
Permitted Transferees) that is being sold or exchanged, and (iv) the method
of payment and other terms and conditions of the proposed sale or exchange.
Dancing Bear, each Holder and such Parties' Permitted Transferees shall
have the option, exercisable by written notice to Messrs. Krizelman and
Paternot, within 10 days (a "Tag-Along Period") after Messrs. Krizelman and
Paternot deliver a Tag-Along Notice stating their intention to effect such
sale or exchange, to sell or exchange up to the same percentage of the
Diluted Capital Stock then Beneficially Owned by each of Dancing Bear, such
Holder and such Parties' Permitted Transferees as is stated in the
Tag-Along Notice delivered by Messrs. Krizelman and Paternot, in such
transaction or series of transactions on the same terms and subject to the
same conditions (including but not limited to obligations with respect to
indemnification) as the sale or exchange by Messrs. Krizelman and Paternot
(and their Permitted Transferees), and, if such option is exercised,
Messrs. Krizelman and Paternot (and their Permitted Transferees) shall not
proceed with such sale or exchange unless the parties who have exercised
such option are given the right to so participate.
(c) In the event that there is a limitation on the aggregate number of
securities which may be included in a sale or exchange as provided by this
Section 9, each party may participate pro rata based upon the number of
securities proposed to be sold or exchanged by all such parties.
(d) Notwithstanding anything to the contrary set forth in this Section
9, no Warrants or Warrant Shares may be sold or exchanged by any Holder or
their Permitted Transferees pursuant to this Section 9 unless such sale or
exchange is in accordance with Dancing Bear's right of first refusal set
forth in Section 7 hereof.
(e) The exercise of any Tag-Along Right and the purchase and sale of
Stock, Warrants or Warrant Shares resulting from the exercise of such
Tag-Along Right shall take place at the principal offices of the Company on
the fifth business day following the end of the applicable Tag-Along
Period, or at such other place, on such other date, or both, as the Buyer
and the deliverer of the Tag-Along Notice shall agree upon in writing.
Section 10. Legend. The following legend shall be noted conspicuously
on all certificates representing shares of Stock, Warrants or Warrant
Shares heretofore or hereafter issued which are subject to the terms of
this Agreement:
"The securities represented by this certificate are subject to
restrictions on transfer and voting, as provided in a Stockholders'
Agreement, dated as of February 14, 1999, among theglobe.com, inc.
(the "Company") and certain of its securityholders, a copy of which is
on file with the Secretary of the Company. No sale, assignment,
transfer, pledge, encumbrance or other disposition shall be effective
unless and until the terms and conditions of that Stockholders'
Agreement shall have been complied with in full."
The Company will agree to cause the foregoing legend to be removed
upon receipt of a certificate from the holder of the Stock, Warrants or
Warrant Shares in a form acceptable to the Company that it is appropriate
to remove such legend.
Section 11. No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities, and neither the
Company nor any other party hereto shall take any action that is
inconsistent in any material respect with the rights granted to or
obligations undertaken by the parties to this Agreement.
Section 12. Termination. This Agreement, and the obligations of the
parties hereto, shall terminate:
(a) with respect to a Holder's Warrants and Warrant Shares, at such
time as all of such Warrants and Warrant Shares have been transferred to a
third party (other than a Permitted Transferee) in accordance with the
terms of this Agreement;
(b) with respect to a party's Stock, upon such time as all of such
party's Stock has been transferred to a third party (other than a Permitted
Transferee) in accordance with the terms of this Agreement;
(c) in its entirety, with the exception of the provisions contained in
Sections 6 and 7 hereof, in the event that Dancing Bear and its Permitted
Transferees hold less than 10% of the Diluted Capital Stock of the Company;
or
(d) in its entirety on the tenth anniversary of the date of this
Agreement.
Section 13. Availability of Equitable Remedies. Since a breach of the
provisions of this Agreement could not adequately be compensated by money
damages, any non-breaching party shall be entitled, in addition to any
other right or remedy available, to an injunction restraining such breach
and to specific performance of any such provision of this Agreement, and in
either case no bond or other security shall be required in connection
therewith, and each party hereto hereby consents to such injunction and to
the ordering of such specific performance.
Section 14. Modification. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter
hereof, supersedes all existing agreements among them concerning such
subject matter, and may be modified only by a written instrument duly
executed by each party hereto at the time of any such modification;
provided, however, that any Permitted Transferee may become a party to this
Agreement upon the execution of an instrument in form and substance
satisfactory to the Company agreeing to be bound by the terms of this
Agreement as if an original signatory hereto, with no further action
required by any other party hereto.
Section 15. Notices. Any notice under or relating to this Agreement
shall be given in writing and shall be deemed sufficiently given when
delivered by hand or by conformed facsimile transmission, on the second
business day after a writing is consigned (freight prepaid) to a commercial
overnight courier, and on the fifth business day after a writing is
deposited in the mail, postage and other charges prepaid, addressed as
follows:
The Company:
theglobe.com,inc.
31 West 21 Street
New York, NY 10010
Attention: Todd V. Krizelman
Stephan Paternot
Telecopier No.: (212) 367-8604
Dancing Bear:
Dancing Bear Investments, Inc.
333 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Attention: Rosalie V. Arthur
Telecopier No.: (954) 769-5930
Todd V. Krizelman:
c/o theglobe.com, inc.
31 West 21st Street
New York, NY 10010
Telecopier No.: (212) 367-8604
Stephan J. Paternot:
c/o theglobe.com, inc.
31 West 21st Street
New York, NY 10010
Telecopier No.: (212) 367-8604
Edward A. Cespedes:
c/o Dancing Bear Investments, Inc.
333 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Telecopier No.: (954) 769-5930
Rosalie V. Arthur:
c/o Dancing Bear Investments, Inc.
333 East Las Olas Boulevard
Fort Lauderdale, FL 33301
Telecopier No.: (954) 769-5930
or to such other address or telecopy number as any party may, from time to
time, designate in a written notice given in a like manner.
Any notice or other communication to be given hereunder to a Permitted
Transferee may be given by any party hereto to Todd V. Krizelman (in the
case of a Permitted Transferee of Todd V. Krizelman), to Stephan J.
Paternot (in the case of a Permitted Transferee of Stephan J. Paternot) to
Edward A. Cespedes (in the case of a Permitted Transferee of Edward A.
Cespedes) to Rosalie V. Arthur (in the case of a Permitted Transferee of
Rosalie V. Arthur) and to Dancing Bear (in the case of a Permitted
Transferee of Dancing Bear), in accordance with the provisions of this
Section 15.
Section 16. Waiver. Any waiver by any party of a breach of any
provision of this Agreement shall not operate as, or be construed to be, a
waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall not
be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Agreement. Any waiver of any provision of this Agreement must be in
writing.
Section 17. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective permitted successors, assigns, heirs, and personal
representatives.
Section 18. Separability. If any provision of this Agreement is deemed
invalid, illegal, or unenforceable, the balance of this Agreement shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons
and circumstances.
Section 19. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 20. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
giving effect to the rules of such state respecting conflicts of law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed or have
caused their duly authorized officers to execute this Agreement as of the
date first written above.
THEGLOBE.COM, INC.
By: /s/ Todd V. Krizelman
-----------------------------
Name: Todd V. Krizelman
Title: Co-Chief Executive
Officer and
Co-President
DANCING BEAR INVESTMENTS, INC.
By: /s/ Rosalie V. Arthur
-----------------------------
Name: Rosalie V. Arthur
Title: Vice President
/s/ Michael S. Egan
---------------------------------
Michael S. Egan
/s/ Todd V. Krizelman
---------------------------------
Todd V. Krizelman
/s/ Stephan J. Paternot
---------------------------------
Stephan J. Paternot
/s/ Rosalie V. Arthur
---------------------------------
Rosalie V. Arthur
/s/ Edward A. Cespedes
---------------------------------
Edward A. Cespedes
EXHIBIT 10.6
=================================================
BROADPINE REALTY HOLDING COMPANY, INC.
LANDLORD
AND
theglobe.com, inc. f/k/a WebGenesis, Inc.
TENANT
-------------
L E A S E
-------------
Premises: Entire 22nd Floor
120 Broadway
New York, New York
==================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Article Page
- ------- ----
1. DEFINITIONS; DEMISE OF PREMISES.....................................1
2. COMMENCEMENT OF TERM................................................3
3. RENT................................................................6
4. USE.................................................................7
5. ALTERATIONS; LIENS; TENANT'S PROPERTY...............................8
6. REPAIRS AND MAINTENANCE.............................................13
7. COMPLIANCE WITH LAW.................................................14
8. INSURANCE...........................................................16
9. DAMAGE OR CASUALTY..................................................18
10. ASSIGNMENT AND SUBLETTING...........................................20
11. NON-LIABILITY; INDEMNIFICATION......................................27
12. CONDEMNATION........................................................29
13. ACCESS; BUILDING NAME...............................................30
14. BANKRUPTCY..........................................................31
15. DEFAULTS, REMEDIES, DAMAGES.........................................32
16. CURING TENANT'S DEFAULTS; REIMBURSEMENT.............................35
17. QUIET ENJOYMENT.....................................................36
18. BUILDING SERVICES...................................................36
19. TAXES; OPERATING EXPENSES...........................................38
20. ELECTRICITY.........................................................48
21. BROKER..............................................................53
22. SUBORDINATION.......................................................53
23. ESTOPPEL CERTIFICATE................................................55
24. LEGAL PROCEEDINGS...................................................55
25. SURRENDER...........................................................56
26. RULES AND REGULATIONS...............................................57
27. PERSONS BOUND.......................................................57
28. NOTICES.............................................................58
29. PARTNERSHIP TENANT..................................................58
30. NO WAIVER; ENTIRE AGREEMENT.........................................59
31. MISCELLANEOUS.......................................................60
32. INABILITY TO PERFORM; SEVERABILITY..................................63
33. SECURITY............................................................63
34. RENEWAL OPTION......................................................65
35. FIRST OFFER RIGHTS..................................................66
36. EXPANSION OPTION....................................................67
EXHIBIT "A" - Floor Plans A-1
EXHIBIT "B" - Commencement Date Agreement B-1
EXHIBIT "C" - Landlord's Work C-1
EXHIBIT "D" - Description of Land D-1
EXHIBIT "E" - Cleaning Specifications E-1
EXHIBIT "F" - Rules and Regulations F-1
EXHIBIT "G" - Form of Letter of Credit G-1
EXHIBIT "H" - Request for Taxpayer Identification Number H-1
EXHIBIT "I" - Approved Contractors I-1
EXHIBIT "J" - Building Holidays J-1
EXHIBIT "K" - First 30th Floor Offer Space K-1
EXHIBIT "L" - 15th Floor Space L-1
EXHIBIT "M" - 12th Floor Space M-1
EXHIBIT "N"" - Second 30th Floor Offer Space N-1
EXHIBIT "O" - 30th /31st Floor Offer Space O-1
EXHIBIT "P" - 21st Floor Offer Space P-1
<PAGE>
INDENTURE OF LEASE made as of this 12th day of January, 1999, between
BROADPINE REALTY HOLDING COMPANY, INC., a New York corporation having an
office c/o J.P. Morgan Investment Management Inc., 522 Fifth Avenue, New
York, New York 10036 (hereinafter referred to as "Landlord"), and
theglobe.com, inc. f/k/a WebGenesis, Inc., a Delaware corporation having an
office at 31 West 21st Street, New York, New York 10010 (hereinafter
referred to as "Tenant").
W I T N E S S E T H :
ARTICLE 1
---------
DEFINITIONS; DEMISE OF PREMISES
Section 1.01. For the purposes of this Lease (including all of the
schedules, riders and exhibits, if any, annexed to this Lease), the terms
set forth below shall have the definitions which immediately follow such
terms, and such definitions are hereby incorporated into this Lease
wherever used:
ALTERATIONS - The term "Alterations" shall mean and include all
installations, changes, alterations, restorations, renovations,
decorations, replacements, additions, improvements and betterments made in
or to the Demised Premises or the Building, and shall include Tenant's
Initial Work. Alterations shall not include Tenant's personal property,
equipment, furniture, furnishings, and trade fixtures if and for so long as
the same shall not be affixed (other than by wiring) to, or incorporated
into, the Demised Premises.
AUTHORIZED USE - The "Authorized Use" shall be for executive,
administrative and general business offices, but subject to the provisions
of this Lease and the certificate of occupancy for the Building.
BASE OPERATING YEAR - The "Base Operating Year" shall mean the calendar
year 1999.
BASE TAX AMOUNT - The "Base Tax Amount" shall mean the amount of Taxes with
respect to calendar year 1999. The Base Tax Amount shall be determined by
averaging the Taxes with respect to (i) the fiscal year commencing July 1,
1998, and ending June 30, 1999, and (ii) the fiscal year commencing July 1,
1999, and ending June 30, 2000. By way of example only, if the Taxes for
the 1998/99 fiscal year were $100,000, and the Taxes for the 1999/00 fiscal
year were $120,000, the Base Tax Amount would be equal to $110,000.
BUILDING - The "Building" shall mean and include the structure and other
improvements constructed or as may in the future be constructed on the
Land, known by the address "120 Broadway", New York, New York.
BUILDING SYSTEMS - The term "Building Systems" shall mean and include such
heating, ventilating and air-conditioning systems, and such elevators,
water, sewerage, toilet, plumbing, sprinkler, electric, wiring and
mechanical systems, now or hereafter installed in the Building, and the
fixtures, equipment and appurtenances thereof, and all other mechanical
devices, fixtures, equipment, appurtenances and systems installed by
Landlord in the Building and serving the tenants of the Building generally
(as opposed to systems used exclusively to service a particular tenant of
the Building).
COMMENCEMENT DATE - The "Commencement Date" shall mean the date set forth
in Subsection 2.01A below.
COMPARABLE BUILDINGS - The term "Comparable Buildings" shall mean
first-class office buildings, similar to the Building, in downtown
Manhattan.
DEMISED PREMISES - The "Demised Premises" shall mean the entire rentable
portion of the 22nd floor in the Building which is shown on the hatched
portion of the plan annexed hereto as Exhibit "A" and made a part hereof.
DESIGNATED BROKER - The "Designated Broker" shall mean Silverstein
Properties Inc. and Julien J. Studley, Inc., collectively.
EXPIRATION DATE - The "Expiration Date" shall mean the date set forth in
Subsection 2.01B below.
FIRST OFFER SPACE - The "First Offer Space" shall mean the space set forth
in Article 35.
INCLUDE AND INCLUDING - The terms "include" and "including" shall each be
construed as if followed by the phrase "without being limited to".
INSURANCE BOARDS - The term "Insurance Boards" shall mean and include the
National Board of Fire Underwriters, the New York Board of Fire
Underwriters, and any other body having similar jurisdiction, and the New
York Fire Insurance Exchange, and any other body establishing insurance
premium rates.
LAND - The "Land" shall mean the real property described in Exhibit "D"
annexed hereto.
LEGAL REQUIREMENTS - The term "Legal Requirements" shall mean and include
all laws, orders, ordinances, directions, notices, rules and regulations of
the federal government and of any state, county, city, borough and
municipality, and of any division, agency, subdivision, bureau, office,
commission, board, authority and department thereof, and of any public
officer or official and of any quasi-governmental officials and authorities
having or asserting jurisdiction over the Land, Building and/or the Demised
Premises.
MINIMUM RENT - The "Minimum Rent" shall be: (i) during the period beginning
on the Commencement Date and continuing through and including the day
immediately preceding the fifth (5th) anniversary of the Commencement Date,
ONE MILLION THREE HUNDRED SIXTY-ONE THOUSAND FIVE HUNDRED SEVENTY-NINE
($1,361,579.00) and 00/100 DOLLARS per annum, to be paid by Tenant in equal
monthly installments of $113,464.92; (ii) during the period beginning on
the fifth (5th) anniversary of the Commencement Date and continuing through
and including the day immediately preceding the tenth(10th) anniversary of
the Commencement Date, ONE MILLION FOUR HUNDRED FIFTY-FIVE THOUSAND FOUR
HUNDRED EIGHTY-ONE ($1,455,481.00) and 00/100 DOLLARS per annum, to be paid
by Tenant in equal monthly installments of $121,290.08; and (iii) during
the period beginning on the tenth (10th) anniversary of the Commencement
Date and continuing through and including the Expiration Date, ONE MILLION
SIX HUNDRED NINETY THOUSAND TWO HUNDRED THIRTY-SIX ($1,690,236.00) and
00/100 DOLLARS per annum, to be paid by Tenant in equal monthly
installments of $140,853.00.
MORTGAGE - The term "Mortgage" shall mean any existing or future mortgage
and/or security deed affecting the Land and/or the Building, alone or with
other property, as the same may from time to time be amended, modified,
renewed, consolidated, substituted, spread, added to, extended and/or
replaced.
MORTGAGEE - The term "Mortgagee" shall mean the mortgagee under, and/or the
holder of, any Mortgage.
OVERLANDLORD - The term "Overlandlord" shall mean the landlord under any
Underlying Lease, including the lease referred to in Subsection 22.01(b)
below.
PERSONS WITHIN TENANT'S CONTROL - The term "Persons Within Tenant's
Control" shall mean and include Tenant, all of Tenant's subtenants and
assignees, and all of their respective principals, officers, agents,
contractors, servants, employees, licensees, guests and invitees.
PERSONS WITHIN LANDLORD'S CONTROL - The term "Persons Within Landlord's
Control" shall mean and include Landlord, and Landlord's principals,
officers, agents, contractors, servants, employees and guests, but shall
not include any tenants in or other occupants of the Building.
RECURRING ADDITIONAL RENT - The term "Recurring Additional Rent" shall mean
all additional rent payable by Tenant pursuant to Article 19 of this Lease.
REPAIRS - The term "Repairs" shall mean and include repairs, restorations
and replacements.
SECURITY DEPOSIT AMOUNT - The "Security Deposit Amount" shall mean $
1,500,000.00, subject, however, to the provisions of Section 33.02B.
SQUARE FEET OF RENTABLE AREA - The term "Square Feet of Rentable Area" in
the Demised Premises shall be deemed to be the equivalent of 46, 951 square
feet, as agreed to by the parties following Tenant's inspection of (or
opportunity to inspect) the Demised Premises. This definition shall not be
construed as any kind of representation by Landlord as to the size of the
Demised Premises or the Building.
TENANT'S INITIAL FIRST OFFER SPACE WORK - The term "Tenant's Initial First
Offer Space Work" shall mean such work (if any) as shall be performed by
Tenant or Persons Within Tenant's Control to prepare any First Offer Space
for Tenant's initial occupancy thereof.
TENANT'S INITIAL WORK - The term "Tenant's Initial Work" shall mean such
work (if any) as shall be performed by Tenant or Persons Within Tenant's
Control to prepare the Demised Premises for Tenant's initial occupancy
thereof.
TENANT'S PROPORTIONATE SHARE - The term "Tenant's Proportionate Share"
shall mean 2.72 %, so long as Landlord continues to own the portion of the
Building currently owned by Landlord. If a portion(s) of the Building (but
not the entire Building) shall be sold, transferred or conveyed, Tenant's
Proportionate Share shall be changed to that percentage which shall be
equal to a fraction, the numerator of which shall be the Square Feet of
Rentable Area, and the denominator of which shall be the aggregate rentable
square feet of office space in that portion of the Building owned by
Landlord at such time (and from time to time), as reasonably determined by
Landlord's architect.
TERM - The "Term" shall mean fifteen (15) years, unless sooner terminated
as provided in this Lease or by law.
UNDERLYING LEASE - The term "Underlying Lease" shall mean any present or
future ground or overriding or underlying lease and/or grant affecting the
Land, the Building and/or the Demised Premises, as the same may from time
to time be amended, modified, renewed, extended and/or replaced.
Section 1.02. Landlord hereby leases to Tenant, and Tenant hereby
hires from Landlord, the Demised Premises, together with the right to use,
in common with others, such portions of the lobbies, elevators and other
public portions of the Building as may be necessary for access to the
Demised Premises, for the Term, and for the Minimum Rent and additional
rent herein reserved, and subject to all of the covenants, agreements,
terms, conditions, limitations, reservations and provisions hereinafter set
forth.
ARTICLE 2
---------
COMMENCEMENT OF TERM
Section 2.01.
------------
A. The Term of this Lease shall commence on the date hereof (the
"Commencement Date").
B. The term of this Lease shall expire at 11:59 p.m. of the last
day of the calendar month in which the day immediately preceding the
fifteenth (15th) anniversary of the Commencement Date shall occur (the
"Expiration Date"), or shall end on such earlier date upon which such term
may expire or be canceled or terminated pursuant to the provisions of this
Lease or by law or shall be extended pursuant to and in accordance with the
terms and conditions contained in Article 34 hereof.
C. Promptly following the Commencement Date, Landlord and Tenant
shall execute and exchange an amendment to this Lease (in the form annexed
hereto as Exhibit "B," and pertaining to the matters set forth therein)
setting forth the actual dates of the Commencement Date and the Expiration
Date, and the date that Tenant's obligation to pay Minimum Rent shall
commence in accordance with Section 3.01 of this Lease, but the failure to
so execute or exchange said supplementary agreement shall not in any way
reduce Tenant's obligations or Landlord's rights under this Lease.
Section 2.02.
------------
A. Landlord agrees to deliver and Tenant agrees to accept possession
of the Demised Premises in "as is" and "where is" condition on the
Commencement Date, and Landlord shall not be obligated to perform any work
whatsoever to prepare the Demised Premises for Tenant, except as specified
in Exhibit "C" which is annexed hereto and made a part hereof ("Landlord's
Work"). The parties hereby agree and acknowledge that, under good
construction practices, the performance of Landlord's Work should be
coordinated with the performance of Tenant's Initial Work and, accordingly,
Landlord's Work will not be performed and completed by Landlord prior to
the Commencement Date. Tenant agrees to make the Demised Premises available
to Landlord at all reasonable times so that Landlord may perform Landlord's
Work, which Landlord agrees to perform in a manner so as not to
unreasonably interfere with the performance of Tenant's Initial Work. All
materials, work, labor, fixtures and installations required for completion
of the Demised Premises and the operation of Tenant's business thereat,
other than Landlord's Work, shall (subject to the provisions of Article 5
below) be promptly furnished and performed by Tenant, at Tenant's own cost
and expense. Within fifteen (15) days following Landlord's approval of
Tenant's Plans for Tenant's Initial Work, Landlord shall deliver to Tenant
a Department of Environmental Protection ACP-5 Form (an "ACP-5") with
respect to the Demised Premises.
B. Notwithstanding anything to the contrary contained in this Lease,
in the event that Landlord shall not have substantially completed the
performance of Landlord's Work on or before the date which is one hundred
twenty (120) days after Landlord's approval of Tenant's Plans for Tenant's
Initial Work outlining designated areas for the installation of the A/C
Units (the "Landlord Completion Date"), and provided that such failure to
substantially complete the performance of Landlord's Work shall not have
been caused by or be attributable to (x) any of the events set forth in
Section 32.01 or (y) any act or omission on the part of Tenant or of
Persons Within Tenant's Control, then, as Tenant's sole remedy in
connection therewith (subject, however, to the provisions of this Section
2.02B), Tenant shall be entitled to an abatement of Minimum Rent and of
Tenant Electricity (as hereinafter defined) allocable to the Demised
Premises for each day beyond the Landlord Completion Date that Landlord
shall fail to substantially complete the performance of Landlord's Work in
the Demised Premises.
Section 2.03. Except as expressly provided to the contrary in Section
2.02 B above, if Landlord shall be unable to give possession of the Demised
Premises on the Commencement Date by reason of the fact that the Demised
Premises are not ready for occupancy, or by reason of the failure of a
prior tenant or occupant thereof to vacate the same or deliver possession
thereof to Landlord, or for any other reason, Landlord shall not be
subjected to any liability for the failure to give possession on said date.
No such failure to give possession on such specific date shall affect the
validity of this Lease or the obligations of Tenant hereunder or be deemed
to extend the Term, but the rent reserved and covenanted to be paid
hereunder shall not commence until possession of the Demised Premises shall
be given or shall be made available for occupancy by Tenant, except that if
such failure to give possession has been caused by any act or omission on
the part of Tenant or of any Person Within Tenant's Control, there shall be
no abatement of rent. If repairs, improvements or decorations of the
Demised Premises, if any, as may be expressly provided in this Lease to be
made by Landlord, are not completed on or before such date, Landlord shall
not be subject to any liability for any delay in such completion. Landlord
hereby represents that the Demised Premises are not currently leased to, or
occupied by, any tenant or occupant. Notwithstanding anything to the
contrary contained herein, in the event that Tenant shall be unable to
occupy the Demised Premises for the conduct of Tenant's business by the
expiration of the Free Rent Period (as hereinafter defined) solely as a
result of Tenant's inability to complete Tenant's Initial Work, and if such
failure to timely complete Tenant's Initial Work is attributable solely to
the negligence or willful misconduct of Landlord (a "Landlord Caused Work
Delay") and, without limiting the foregoing, shall not be caused by or be
attributable to (x) any of the events set forth in Section 32.01 or (y) any
act or omission on the part of Tenant or of Persons Within Tenant's
Control, then, as Tenant's sole remedy in connection therewith, Tenant
shall be entitled to an extension of the Free Rent Period allocable to the
Demised Premises for each day beyond the expiration of the Free Rent Period
that Tenant shall have been unable to occupy the Demised Premises for the
conduct of Tenant's business therein due solely to such Landlord Caused
Work Delay.
Section 2.04. Except as expressly provided in this Article 2, the
parties hereto agree that this Article 2 constitutes an express provision
as to the time at which Landlord shall deliver possession of the Demised
Premises to Tenant, and Tenant hereby waives any rights to rescind this
Lease which Tenant might otherwise have pursuant to Section 223-a of the
Real Property Law of the State of New York, or pursuant to any other law of
like import now or hereafter in force.
Section 2.05.
------------
A. Subject to the terms and conditions hereinafter set forth,
Landlord agrees to provide a construction allowance ("Landlord's
Contribution") to reimburse Tenant for the cost expended by Tenant to
perform Tenant's Initial Work, in an aggregate amount not to exceed ONE
MILLION SIX HUNDRED FORTY THREE THOUSAND TWO HUNDRED EIGHTY FIVE
($1,643,285.00) DOLLARS. Landlord shall fund the portion of Landlord's
Contribution then being requisitioned in the manner set forth in
Subsections 2.05B and 2.05C below, but only at such time as all of the
following conditions shall have been satisfied or waived by Landlord, in
Landlord's sole and absolute discretion:
(i) Tenant shall not be in default in any of its monetary
obligations hereunder or in default (after notice and the expiration of any
applicable cure period provided in this Lease) with respect to any of the
material terms, covenants or conditions to be performed or observed by
Tenant under this Lease.
(ii) Tenant shall have obtained, and at all times during the
construction period shall maintain, all necessary and appropriate permits,
licenses, authorizations and approvals from all governmental authorities
having or asserting jurisdiction in connection with such construction, and
shall have delivered true copies thereof to Landlord; and
(iii) Tenant shall have delivered to Landlord, for approval
by Landlord: (x) a completed requisition for payment (in form issued by the
American Institute of Architects), certified and sworn to by Tenant's
architect stating or accompanied by: (1) the amount being requested, (2)
receipted invoices for all labor and materials performed as part of
Tenant's Initial Work (to the extent such invoices were not previously
provided to Landlord), (3) to the best of such architect's knowledge, the
amount of Landlord's Contribution theretofore paid to Tenant, (4) the cost
of labor and materials theretofore performed and incorporated in the
Demised Premises and the estimated aggregate cost of the entire Tenant's
Initial Work to be performed, and (5) that the work completed to date has
been performed substantially in accordance with the plans and
specifications approved by Landlord and in compliance with all Legal
Requirements; and (y) waivers of lien from all contractors, subcontractors
and materialmen who shall have furnished materials or supplies or performed
work or services in connection with Tenant's Initial Work, which is the
subject of such requisition.
B. Within thirty (30) days after Tenant shall have complied with
all of the conditions set forth in the foregoing Subsection 2.05A, Landlord
shall pay to Tenant an amount equal to that portion of Landlord's
Contribution which shall equal, on a percentage basis, that portion of
Tenant's Initial Work then completed in accordance with the provisions
hereof, as certified by Tenant's architect, less all amounts of Landlord's
Contribution previously disbursed; provided, however, that (x) Landlord
shall not be required to make more than one (1) payment per calendar month,
and (y) the disbursements hereunder shall be subject to a retention of ten
(10%) percent until Tenant's Initial Work shall have been completed
(excluding "punch-list" and other minor work) and approved.
C. Provided that Tenant shall not then be in default in any of
its monetary obligations hereunder or in default (after notice and the
expiration of any applicable cure period provided in this Lease) with
respect to any of the material terms, covenants or conditions to be
performed or observed by Tenant under this Lease, then, within thirty (30)
days following the last to occur of: (i) Tenant's request for payment of
the final installment of Landlord's Contribution, (ii) completion of
Tenant's Initial Work in accordance with the provisions of Article 5 below,
(iii) the certification of Tenant's architect that Tenant's Initial Work
has been completed to the satisfaction of Tenant's architect, substantially
in accordance with the plans and specifications approved by Landlord and in
compliance with all Legal Requirements, (iv) delivery by Tenant to Landlord
of waivers of lien from all contractors, subcontractors and materialmen who
shall have furnished materials or supplies or performed work or services in
connection with Tenant's Initial Work, (v) delivery by Tenant to Landlord
of true copies of final approvals of Tenant's Initial Work by all
governmental authorities having or asserting jurisdiction (including the
New York City Department of Buildings), and (vi) delivery by Tenant to
Landlord of "as built" drawings with respect to Tenant's Initial Work (if
and to the extent that the same shall have been prepared), the balance of
Landlord's Contribution which has not been previously disbursed (but, in
the aggregate, not in excess of the total cost of Tenant's Initial Work),
shall be disbursed to Tenant. Tenant expressly agrees that Landlord's
obligation to pay the final installment of Landlord's Contribution shall be
conditioned upon Tenant's timely compliance with the requirements set forth
in clauses (i) - (vi) of this Subsection 2.05(C), and that Tenant's right
to receive any portion of Landlord's Contribution which shall not have been
requested by Tenant within eighteen (18) months following completion of
Tenant's Initial Work shall be deemed to have been irrevocably waived by
Tenant.
D. Landlord's obligation to pay Landlord's Contribution shall
only apply to that part of Tenant's Initial Work consisting of the
installation of walls, partitions, fixtures, improvements and appurtenances
permanently attached to or built into the Demised Premises, including the
following: mechanical systems, flooring, ceilings, duct work, electrical
wiring, plumbing, millwork and supplemental air-conditioning systems (if
any), decorating, affixed carpeting and other floor coverings, (but shall
not include business and trade fixtures, machinery, equipment or other
articles of personal property), design fees, consulting, permit and similar
fees, architectural fees, engineering fees, legal fees, construction and/or
project management fees, and moving expenses (with such fees and expenses
being referred to herein as "soft costs"); provided, however, in no event
shall Landlord be required to pay more than ten (10%) percent (i.e.,
$164,328.50) of Landlord's Contribution for any such "soft costs" incurred
in connection with the performance of Tenant's Initial Work.
Section 2.06. Upon execution of this Lease by Tenant, Tenant shall
execute and deliver to Landlord a Request for Taxpayer Identification
Number and Certification in the form annexed hereto as Exhibit "H".
ARTICLE 3
---------
RENT
Section 3.01. Tenant covenants and agrees that, during the entire
Term, Tenant shall pay to Landlord the Minimum Rent at the annual rate set
forth in Section 1.01, in equal monthly installments, in advance, on the
first day of each calendar month during the Term, at the office of Landlord
or such other place as Landlord may designate, without any abatement,
reduction, setoff, counterclaim, defense or deduction whatsoever; it being
agreed, however, that if Tenant shall not then be in default (after notice
and the expiration of any applicable cure period provided in this Lease) of
any of Tenant's obligations under this Lease, Landlord hereby conditionally
excuses Tenant's obligation to pay Minimum Rent for the first three (3)
full calendar months of the Term (the "Free Rent Period"). Upon the
execution of this Lease, Tenant shall pay to Landlord the installment of
Minimum Rent due hereunder for the fourth (4th) full calendar month of the
Term. In the event that Tenant's obligation to pay Minimum Rent shall
commence on a date which shall be other than the first day of a calendar
month, the same shall be prorated at the rental rate applicable during the
first year of the Term, and shall be paid by Tenant to Landlord together
with the first full monthly installment of Minimum Rent as shall become due
hereunder.
Section 3.02. All costs, charges, expenses and payments (including the
payments required to be made by Tenant pursuant to Article 19 below) which
Tenant assumes, agrees or shall be obligated to pay to Landlord or others
pursuant to this Lease (other than Minimum Rent) shall be deemed additional
rent, and, in the event that Tenant shall fail to timely pay the same,
Landlord shall have all of the rights and remedies with respect thereto as
are provided for herein or by applicable law in the case of non-payment of
rent.
Section 3.03. Tenant covenants to pay the Minimum Rent and additional
rent as in this Lease provided, when due and without notice or demand, in
lawful money of the United States which shall be legal tender in payment of
all debts and dues, public and private, at the time of payment. If any
installment of Minimum Rent or any additional rent shall not be paid within
five (5) days after such installment of Minimum Rent or additional rent
shall have first become due, Tenant shall also pay to Landlord (i) an
administrative late charge in the amount of $250.00, and (ii) interest
thereon from the due date until such installment of Minimum Rent or
additional rent is fully paid at the "Interest Rate" (defined in Article 16
below). Such administrative late charge and interest charge shall be due
and payable as additional rent with the next monthly installment of Minimum
Rent provided that Landlord has given Tenant written notice of same. If any
check delivered to Landlord in full or partial payment of any amounts due
to Landlord pursuant to the terms of this Lease shall not be honored by
reason of insufficient or uncollected funds or for any other reason, then
(x) Tenant shall pay to Landlord a service charge on account thereof in the
amount of $250.00, which service charge shall be due and payable as
additional rent with the next monthly installment of Minimum Rent provided
that Landlord has given Tenant written notice of same, and (y) all
subsequent payments of any amounts due to Landlord pursuant to the terms of
this Lease for the next twelve (12) months shall, if Landlord so requests,
be made by certified check, official bank or teller's check, or money
order. Upon default in payment by Tenant of any of the aforementioned
charges, Landlord shall have all the rights and remedies provided for upon
default of the Minimum Rent. The foregoing obligations on the part of the
Tenant shall not preclude the simultaneous or subsequent exercise by
Landlord of any and all other rights or remedies provided for in this Lease
or now or hereafter existing at law or in equity or by statute or
otherwise. No payment by Tenant or receipt by Landlord of a lesser amount
than the Minimum Rent or additional rent herein stipulated shall be deemed
to be other than on account of the earliest stipulated Minimum Rent or
additional rent (unless Landlord, in Landlord's sole and absolute
discretion, shall otherwise and in writing so elect), nor shall any
endorsement or statement on any check or in any letter accompanying any
check or payment, as Minimum Rent or additional rent, be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such Minimum Rent
and additional rent or pursue any other remedy provided in this Lease, at
law or in equity.
Section 3.04. If all or any part of the Minimum Rent or additional
rent shall at any time become uncollectible, reduced or required to be
refunded by virtue of any Legal Requirements (including rent control or
stabilization laws), except if and to the extent the same shall be as a
result of the ICIP Program, the LMEP or the Lower Manhattan Plan (each as
hereinafter defined), then for the period prescribed by said Legal
Requirements, Tenant shall pay to Landlord the maximum amounts permitted
pursuant to said Legal Requirements, and Tenant shall execute and deliver
such agreement(s) and take such other steps as Landlord may reasonably
request and as may be legally permissible to permit Landlord to collect the
maximum rent which, from time to time during the continuance of such legal
rent restriction, may be legally permissible (and not in excess of the
amounts then reserved therefor under this Lease). Upon the expiration or
other legal termination of the applicable period of time during which such
amounts shall be uncollectible, reduced or refunded: (a) the Minimum Rent
and additional rent shall become and shall thereafter be payable in
accordance with the amounts reserved herein for the periods following such
expiration or termination, and (b) Tenant shall pay to Landlord as
additional rent, within fifteen (15) days after demand, all uncollected,
reduced or refunded amounts that would have been payable for the aforesaid
period absent such Legal Requirements. The provisions of the immediately
preceding sentence shall survive the expiration or sooner termination of
this Lease.
Section 3.05. If Landlord shall direct Tenant to pay Minimum Rent or
additional rent to a "lockbox" or other depository whereby checks issued in
payment of Minimum Rent or additional rent (or both, as the case may be)
are initially cashed or deposited by a person or entity other than Landlord
(albeit on Landlord's authority), then, for any and all purposes under this
Lease: (i) Landlord shall not be deemed to have accepted such payment until
ten (10) days after the date on which Landlord shall have actually received
such funds (although for purposes of determining whether a default shall
exist under this Lease, Tenant shall be deemed to have paid Minimum Rent or
additional rent on the date such Minimum Rent and/or additional rent shall
have been delivered to such lockbox), and (ii) Landlord shall be deemed to
have accepted such payment if (and only if) within said ten (10) day
period, Landlord shall not have refunded (or attempted to refund) such
payment to Tenant. Nothing contained in the immediately preceding sentence
shall be construed to place Tenant in default of Tenant's obligation to pay
rent if and for so long as Tenant shall timely pay the rent required
pursuant to this Lease in the manner designated by Landlord.
ARTICLE 4
---------
USE
Section 4.01. Tenant shall use and occupy the Demised Premises for the
Authorized Use (as defined in Section 1.01), and for no other purpose.
Section 4.02. Without in any way limiting the restrictions on use
contained in Section 4.01, Tenant specifically agrees that Tenant shall not
permit any part of the Demised Premises to be used for banking or lending
purposes of any kind; or for a safe deposit business or the sale of
travelers checks and/or foreign exchange; or as a kitchen, restaurant or
cafeteria (except, subject to Tenant's compliance with the certificate of
occupancy affecting the Demised Premises and with all other provisions of
this Lease, and as an incident to Tenant's use of the Demised Premises for
the Authorized Use, Tenant shall be permitted to use a dwyer pantry for the
use of its staff); or for manufacturing, storage, shipping or receiving; or
for retail securities brokerage purposes; or for any purpose that would
violate restrictive covenants with any tenant of the Building, of which
shall exist on the date hereof and of which Tenant shall have written
notice; or for any retail sales or as a store; or for the sale of any food
or beverage; or as a news and cigar stand (or anything similar thereto); or
for any sale of merchandise with delivery at or from the Demised Premises;
or for the production of samples or workroom; or for any purpose other than
the Authorized Use. Landlord represents that there are no restrictive
covenants with any tenant of the Building which would prohibit Tenant's use
of the Demised Premises for the Authorized Use and any incidental use
expressly permitted under this Lease. In addition, the Demised Premises may
not be used by (i) an agency, department or bureau of the United States
Government, any state or municipality within the United States, or any
foreign government, or any political subdivision of any of them, (ii) any
charitable, religious, union or other not-for-profit organization, or (iii)
any tax exempt entity within the meaning of Section 168(h)(2) of the
Internal Revenue Code of 1986, as amended, or any successor or substitute
statute, or rule or regulation applicable thereto (as same may be amended).
Section 4.03. Tenant expressly acknowledges that irreparable injury
will result to Landlord in the event of a breach of any of the covenants
made by Tenant in this Article 4, and it is agreed that, in the event of
such breach, Landlord shall be entitled, in addition to any other remedies
available, to an injunction to restrain the violation thereof. Breach of
any of Tenant's covenants under this Article (after notice and the
expiration of the applicable cure period provided in this Lease) shall also
constitute an Event of Default pursuant and subject to the provisions of
Article 15 hereof.
ARTICLE 5
---------
ALTERATIONS; LIENS; TENANT'S PROPERTY
Section 5.01.
------------
A. Except as expressly provided to the contrary in this Section
5.01, Tenant shall make no Alterations in or to the Demised Premises,
including removal or installation of partitions, doors, electrical
installations, plumbing installations, water coolers, heating, ventilating
and air conditioning or cooling systems, units or parts thereof or other
apparatus of like or other nature, whether structural or non-structural,
without Landlord's prior written consent (which consent Landlord agrees not
to unreasonably withhold or unduly delay with respect to non-structural
Alterations ("Minor Non-Structural Alterations") that are made entirely
within the Demised Premises and which do not (i) affect the structure of
the Building or any Building Systems outside (or serving parts of the
Building outside) the Demised Premises, or (ii) violate, create a condition
which violates, or require Landlord to perform any work or incur any
expense to ensure compliance with, any Legal Requirements (it being agreed
that, in all other instances, Landlord may withhold its consent in
Landlord's sole and absolute discretion), and then only by contractors or
mechanics as set forth in Subsection 5.01D below or approved in writing by
Landlord (which approval Landlord agrees not to unreasonably withhold or
unduly delay with respect to contractors or mechanics performing Minor
Non-Structural Alterations). Notwithstanding anything to the contrary
contained in this Section 5.01, Tenant shall have the right, on not less
than three (3) Business Days prior written notice to Landlord, but without
being required to obtain Landlord's consent, to perform Alterations in or
to the Demised Premises which do not require the issuance of a building
permit or any other governmental authorization and which are purely
decorative in nature (i.e., painting and the installation or removal of
carpeting or wall coverings; collectively, "Decorative Alterations"),
provided that: (x) such Decorative Alterations are made entirely, and
visible only, within the Demised Premises, (y) Tenant shall comply with all
applicable Legal Requirements and all of the other applicable requirements
governing Alterations set forth in this Lease, and (z) such Decorative
Alterations shall be performed only by Approved Contractors (as hereinafter
defined).
B. It shall be Tenant's responsibility and obligation to ensure
that all Alterations: (i) shall be made at Tenant's own cost and expense
and at such times and in such manner as Landlord may from time to time
reasonably designate (including reasonable rules governing Alterations as
Landlord may from time to time make as provided under the provisions of
Article 26 below, which rules shall not be enforced against Tenant in a
discriminatory manner), (ii) shall comply with all Legal Requirements
(including NYC Local Laws No. 5 of 1973, No. 16 of 1984 and No. 58 of 1988,
each as amended from time to time, and all Legal Requirements then in
effect relating to asbestos and to access for the handicapped or disabled)
and all orders, rules and regulations of Insurance Boards, (iii) shall be
made promptly and in a good and workmanlike manner using prime quality
materials, and (iv) shall not affect the appearance of the Building outside
of the Demised Premises or be visible from the exterior of the Building, it
being Landlord's intention to keep the exterior appearance of the Building
reasonably uniform (and, in pursuance thereof, Landlord shall have the
right to approve the appearance of all such Alterations described in this
subclause (iv), including ceiling heights, blinds, lighting, signs and
other decorations). In order to ensure, maintain and control the quality
and standards of materials and workmanship in and the effective security of
the Building, including the Demised Premises, Tenant acknowledges that it
is reasonable to require Tenant, and Tenant hereby covenants and agrees, to
use only contractors as set forth in Subsection 5.01D below or contractors
first approved in writing by Landlord (which approval Landlord agrees not
to unreasonably withhold or unduly delay with respect to contractors or
mechanics performing Minor Non-Structural Alterations as described in
Subsection 5.01A above). Landlord expressly reserves the right to exclude
from the Building any person, firm or corporation attempting to perform any
work or act as construction contractor or manager without Landlord's prior
written consent.
C. Within ten (10) days after being billed therefor, Tenant shall
reimburse Landlord, as additional rent, for any reasonable out-of-pocket
expenses incurred by Landlord and payable to unaffiliated third parties in
connection with any Alterations performed by Tenant.
D. A list of currently approved contractors and mechanics is
annexed hereto as Exhibit "I" and made a part hereof ("Approved
Contractors"). The contractors and mechanics identified on said list shall
be deemed approved only for the performance of Tenant's Initial Work and
not for any other future Alterations. Following the completion of Tenant's
Initial Work, Landlord shall have the unfettered right to revise said list
in any manner that Landlord deems appropriate. Landlord shall provide
Tenant with any such revised list upon written request therefor by Tenant,
and those contractors and mechanics on such list shall, subject to the
provisions of this Subsection 5.01D, be deemed Approved Contractors
hereunder.
E. The provisions of this Article 5 shall apply to Tenant's
Initial Work, as well as to all future Alterations.
Section 5.02.
------------
A. Prior to commencing the performance of any Alterations (other
than Decorative Alterations), Tenant shall furnish to Landlord:
(i) Plans and specifications (to be prepared by a licensed
architect or engineer engaged by Tenant, at the sole cost and expense of
Tenant), in sufficient detail to be accepted for filing by the New York
City Building Department (or any successor or other governmental agency
serving a similar function), of such proposed Alterations, and Tenant shall
not commence the performance thereof unless and until Landlord has given
written consent to said plans and specifications (which consent shall not
be unreasonably withheld or delayed with respect to plans and
specifications for Minor Non-Structural Alterations);
(ii) A certificate evidencing that Tenant (or Tenant's
contractors) has (have) procured and paid for worker's compensation
insurance covering all persons employed in connection with the work who
might assert claims for death or bodily injury against Overlandlord,
Landlord, Tenant, the Land and/or the Building;
(iii) Such additional personal injury and property damage
insurance (over and above the insurance required to be carried by Tenant
pursuant to the provisions of Section 8.03 below), and builder's risk, fire
and other casualty insurance as Landlord may reasonably require in
connection with the work to be done for Tenant;
(iv) Except with respect to Tenant's Initial Work, if the
work to be undertaken is of such a nature that it requires the approval of
the Overlandlord or any Mortgagee, such approval shall be obtained at
Tenant's own cost and expense; and if the work requires expenditures by
Tenant in excess of an amount equal to three (3) monthly installments of
the then prevailing Minimum Rent, a surety company performance bond in form
and substance satisfactory to Landlord (procured at Tenant's own cost and
expense), issued by a surety company acceptable to Landlord, or other
security satisfactory to Landlord, in an amount equal to at least 110% of
the estimated cost of such Alterations, guaranteeing to Landlord,
Overlandlord and any Mortgagee the completion thereof and payment therefor
within a reasonable time, free and clear of all liens, encumbrances,
chattel mortgages, security interests, conditional bills of sale and other
charges, and substantially in accordance with the plans and specifications
approved by Landlord;
(v) Such permits, authorizations or consents as may be
required by any applicable Legal Requirements, all of which shall be
obtained at Tenant's cost and expense, provided, however, that no plans,
specifications or applications shall be filed by Tenant with any
governmental authority without Tenant first obtaining Landlord's written
consent thereto (which consent may not be withheld or delayed to the extent
Landlord has already approved such plans and specifications). Landlord
agrees that Landlord shall reasonably cooperate with Tenant in connection
with obtaining any such permits, authorizations, or consents, including the
signing by Landlord of any such applications or other documents which shall
be necessary and are customarily signed by building owners on behalf of
their tenants provided that Landlord shall not be required to incur any
expense thereby; and
(vi) A written letter of authorization, in form satisfactory
to Landlord, signed by all architects, engineers, surveyors and designers
to become involved in such Alterations, which shall confirm that any of
their respective drawings or plans are to be removed from any filing with
governmental authorities on the request of Landlord.
B. In the event that Landlord shall submit the plans and
specifications referred to in clause (i) of Subsection 5.02A above to
Landlord's unaffiliated third-party architects and/or engineers for review,
Tenant shall reimburse Landlord as additional rent for Landlord's actual
and reasonable out -of-pocket expenses of such review within ten (10) days
after delivery to Tenant of the invoices showing the amount of such
expense.
C. Tenant shall keep accurate and complete cost records of all
Alterations performed by Tenant or by Persons Within Tenant's Control, and
shall furnish to Landlord true copies thereof and/or of all contracts
entered into and work orders issued by Tenant in connection therewith
within thirty (30) days following Landlord's request therefor. Landlord's
review of, and/or any failure by Landlord to object to, any such contract
or work order shall not: (i) be construed as an approval by Landlord of
such contract or work order or the contents thereof except as expressly
provided in Subsection 5.02D below, (ii) impose any liability on Landlord
in connection therewith, or (iii) relieve Tenant of any obligation of
Tenant with respect to such Alterations or the Demised Premises as
otherwise set forth in this Lease.
D. I. In connection with Tenant's Initial Work and Tenant's
Initial First Offer Space Work only, if Landlord shall fail to notify
Tenant that Landlord has consented in writing or not consented in writing
to any of Tenant's plans, specifications, or applications (or portions
thereof) for Tenant's Initial Work or Tenant's Initial First Offer Space
Work as provided in Subsection 5.02A(i) above within eight (8) Business
Days after Landlord's receipt of a written notice (a "Tenant's Initial Work
Notice" or a "Tenant's Initial First Offer Space Work Notice", as the case
may be), delivered by Tenant, Landlord shall be deemed to have granted such
consent if such Tenant's Initial Work Notice or Tenant's Initial First
Offer Space Work Notice, as the case may be, shall specify the precise
nature of Tenant's Initial Work or Tenant's Initial First Offer Space Work,
as the case may be, and shall include the plans, specifications, or
applications (or portions thereof) for Tenant's Initial Work or Tenant's
Initial First Offer Space Work, as the case may be, and shall bear the
following legend typed in bold, capital letters at the top: "IF LANDLORD
SHALL FAIL TO NOTIFY TENANT THAT LANDLORD HAS CONSENTED OR NOT CONSENTED TO
THE PROPOSED [TENANT'S INITIAL WORK (OR TENANT'S INITIAL FIRST OFFER SPACE
WORK) /PLANS, SPECIFICATIONS, APPLICATIONS (OR PORTIONS THEREOF)] SPECIFIED
HEREIN WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING LANDLORD'S RECEIPT OF THIS
NOTICE, LANDLORD SHALL BE DEEMED TO HAVE CONSENTED TO SUCH PROPOSED
[TENANT'S INITIAL WORK (OR TENANT'S INITIAL FIRST OFFER SPACE WORK) /PLANS,
SPECIFICATIONS, OR APPLICATIONS (OR PORTIONS THEREOF)] IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 5.02D.I. OF THE LEASE."
II. In connection with Tenant's Initial Work and Tenant's Initial
First Offer Space Work only, if Landlord shall fail to notify Tenant that
Landlord has consented in writing or not consented in writing to any of
Tenant's revisions to Tenant's plans, specifications, or applications (or
portions thereof) for Tenant's Initial Work or Tenant's Initial First Offer
Space Work, as the case may be, as provided in Subsection 5.02A(i) above
within five (5) Business Days after Landlord's receipt of a written notice
(a "Tenant's Initial Work Revisions Notice" or a "Tenant's Initial First
Offer Space Work Revisions Notice", as the case may be) delivered by
Tenant, Landlord shall be deemed to have granted such consent if such
Tenant's Initial Work Revisions Notice or Tenant's Initial First Offer
Space Work Revisions Notice, as the case may be, shall include the
revisions to the plans, specifications, or applications (or portions
thereof) for Tenant's Initial Work or Tenant's Initial First Offer Space
Work, as the case may be, and shall bear the following legend typed in
bold, capital letters at the top: "IF LANDLORD SHALL FAIL TO NOTIFY TENANT
THAT LANDLORD HAS CONSENTED OR NOT CONSENTED TO THE REVISIONS TO THE
PROPOSED [TENANT'S INITIAL WORK (OR TENANT'S INITIAL FIRST OFFER SPACE
WORK) /PLANS, SPECIFICATIONS, OR APPLICATIONS (OR PORTIONS THEREOF)]
SPECIFIED HEREIN WITHIN FIVE (5) BUSINESS DAYS FOLLOWING LANDLORD'S RECEIPT
OF THIS NOTICE, LANDLORD SHALL BE DEEMED TO HAVE CONSENTED TO SUCH
REVISIONS TO THE PROPOSED [TENANT'S INITIAL WORK (OR TENANT'S INITIAL FIRST
OFFER SPACE WORK) /PLANS, SPECIFICATIONS, OR APPLICATIONS (OR PORTIONS
THEREOF)] IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02D.II. OF THE
LEASE."
Notwithstanding anything to the contrary contained herein, Landlord's
written notice to Tenant of Landlord's non-approval of any of Tenant's
initial or revised plans, specifications, or applications (or portions
thereof) for Tenant's Initial Work or Tenant's Initial First Offer Space
Work, as the case may be, as provided in Section 5.02A(i) above shall
specify the reason(s) such consent was withheld by Landlord.
Section 5.03.
------------
A. Except for furniture, fixtures, and customary office equipment
which is the subject of a lease or installment sales contract and does not
constitute an Alteration, in no event shall any material or equipment be
incorporated in or to the Demised Premises in connection with any
Alteration which is subject to any lien, encumbrance, chattel mortgage,
security interest, charge of any kind whatsoever, or is subject to any
conditional sale or other similar or dissimilar title retention agreement.
B. Tenant shall not create or permit to be created any lien,
encumbrance or charge (levied on account of any taxes or any mechanic's,
laborer's or materialman's lien, conditional sale, title retention
agreement or otherwise) which might be or become a lien, encumbrance or
charge upon the Land or Building or any part thereof or the income
therefrom, and Tenant shall not suffer any other matter or thing whereby
the estate, rights and interest of Landlord in the Land or Building or any
part thereof might be impaired. Tenant shall take all steps necessary under
local laws to prevent the imposition of such a lien, encumbrance or charge
on the Land or Building.
C. If any lien, encumbrance or charge referred to in this Section
5.03 (other than any lien, encumbrance or charge resulting solely and
directly from work performed by Landlord) shall at any time be filed
against the Land or Building or any part thereof, then Tenant, within
thirty (30) days after Tenant receives actual notice of the filing thereof
from any source and at Tenant's own cost and expense, shall cause the same
to be discharged of record or bonded, and Tenant shall indemnify Landlord
against and defend and hold Landlord harmless from all costs, expenses,
liabilities, losses, fines and penalties, including reasonable attorneys'
fees and disbursements, resulting therefrom. If Tenant shall fail to cause
such lien to be discharged or bonded within the aforesaid period, then, in
addition to any other right or remedy, Landlord may, but shall not be
obligated to, discharge the same either by paying the amount claimed to be
due or by procuring the discharge of such lien by deposit or by bonding
proceedings, and in any such event Landlord shall be entitled, if Landlord
so elects, to compel the prosecution of an action for the foreclosure of
such lien by the lienor and to pay the amount of the judgment in favor of
the lienor with interest, costs and allowances. Any amount so paid by
Landlord and all costs and expenses incurred by Landlord in connection
therewith, together with interest thereon at the Interest Rate, shall
constitute additional rent payable by Tenant under this Lease, which
additional rent shall be paid by Tenant to Landlord on demand within ten
(10) days following delivery of a bill therefor to Tenant.
D. Except as otherwise expressly provided herein, nothing
contained in this Lease shall be deemed or construed in any way as
constituting the consent or request of Landlord, express or implied by
inference or otherwise, to any contractor, subcontractor, laborer or
materialman for the performance of any labor or the furnishing of labor or
materials for the specific improvement, alteration to or repair of the
Demised Premises or any part thereof, nor as giving Tenant any right, power
or authority to contract for or permit the rendering of any services or the
furnishing of any materials that would give rise to the filing of any lien
against the Land, Building, Demised Premises or any part thereof. Notice is
hereby given that Landlord shall not be liable for any work performed or to
be performed at the Demised Premises for Tenant or any subtenant, or for
any materials furnished or to be furnished at the Demised Premises for
Tenant or any subtenant upon credit, and that no mechanic's or other lien
for such work or materials shall attach to or affect the estate or interest
of Landlord in and to the Land, Building or Demised Premises. Landlord
shall have the right to post and keep posted on the Demised Premises any
notices which Landlord may be required to post for the protection of
Landlord, the Land, Building and/or the Demised Premises from any lien.
E. Tenant shall have no power to do any act or make any contract
which may create or be the foundation for any lien, mortgage or other
encumbrance upon the reversion or other estate of Landlord or of any
interest of Landlord in the Demised Premises.
Section 5.04. Tenant shall not at any time, either directly or
indirectly, use any contractors or labor or materials in the Demised
Premises if the use of such contractors or labor or materials would create
any work stoppage, picketing, labor disruption or any other difficulty with
other contractors or labor engaged by Tenant or Landlord or others in the
construction, maintenance or operation of the Building or any part thereof.
Tenant shall immediately stop any work or other activity if Landlord shall
notify Tenant that continuing such work or activity would violate the
provisions of the immediately preceding sentence.
Section 5.05. Landlord shall not be liable for any failure or
diminution of any Building Systems or services, or for any damage to
Tenant's property or the property of any other person, caused by
Alterations made by Tenant or by Persons Within Tenant's Control,
notwithstanding Landlord's consent thereto or to the plans and
specifications therefor. Landlord's consent to any such plans or
specifications shall not be deemed a representation of any kind that the
same conform to the applicable Legal Requirements. Tenant shall promptly
correct any faulty or improper Alteration made by Tenant or by Persons
Within Tenant's Control, and shall repair any and all damage caused
thereby. Upon Tenant's failure to promptly make such corrections and
repairs, Landlord may make such corrections and repairs and charge Tenant
for the cost thereof. Such charge shall be deemed additional rent, and
shall be paid by Tenant to Landlord within ten (10) days after written
notice to Tenant of the amount thereof.
Section 5.06.
------------
A. All movable property, furniture, furnishings and trade
fixtures furnished by or at the expense of Tenant, other than those affixed
to the Demised Premises so that they cannot be removed without damage and
other than those replacing an item theretofore furnished and paid for by
Landlord or for which Tenant has received a credit or allowance, shall
remain the property of Tenant, and may be removed by Tenant from time to
time prior to the expiration of the Term. Tenant shall notify Landlord in
writing not less than sixty (60) days prior to the expiration of the Term
specifying any such items of property which Tenant does not wish to remove.
If within thirty (30) days after the service of such notice Landlord shall
request Tenant to remove any of said items, Tenant shall, at Tenant's
expense, remove said items prior to the expiration of the Term. Without
limiting the generality of the provisions of this Subsection 5.06A, Tenant
expressly agrees that, at Landlord's request, Tenant shall, at Tenant's own
cost and expense and prior to the expiration of the Term, remove any and
all vaults located or installed in the Demised Premises.
B. All Alterations made by either party, including all paneling,
decorations, partitions, railings, mezzanine floors, galleries and the
like, which are affixed to the Demised Premises, shall become the property
of Landlord and shall be surrendered with the Demised Premises at the end
of the Term; provided, however, that Landlord may elect to require Tenant
to remove, prior to the expiration or earlier termination of the Term, at
Tenant's expense, "Specialty Alterations" (as such term is defined below).
Notwithstanding the foregoing, if, simultaneously with Tenant's submission
to Landlord for Landlord's approval of plans and specifications of an
Alteration, Tenant shall deliver a written request (the "Fixtures Request")
that Landlord notify Tenant whether a proposed Alteration constitutes a
"Specialty Alteration", and, if so, whether Tenant must remove such
Specialty Alteration upon the expiration or earlier termination of the
Term, Landlord shall so notify Tenant at the time Landlord shall give its
approval of such plans and specifications. The Fixtures Request shall
specify the Specialty Alteration that Tenant is requesting not to remove
and shall bear the following legend typed in bold, capital letters at the
top: "IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.06 OF THE LEASE,
TENANT REQUESTS THAT LANDLORD NOTIFY TENANT WHETHER THE ALTERATION
DESCRIBED HEREIN CONSTITUTES A "SPECIALTY ALTERATION", AND, IF SO, WHETHER
TENANT SHALL BE REQUIRED TO REMOVE SUCH SPECIALTY ALTERATION UPON THE
EXPIRATION OR EARLIER TERMINATION OF THE TERM." In the event that Landlord
shall so notify Tenant that Tenant shall be required to remove any such
Specialty Alterations from the Demised Premises on or prior to the
Expiration Date, such Specialty Alterations shall not become the property
of Landlord on the Expiration Date. For the purposes hereof, the term
"Specialty Alterations" shall mean and include any Alteration that is not
an ordinary office installation, as reasonably determined by Landlord. By
way of example only, a kitchen, cafeteria, private lavatory, raised floor,
vault, safe, internal stairway or slab cut would each be deemed to be a
Specialty Alteration (it being understood and agreed that the foregoing is
merely a list of non-exclusive examples of Specialty Alterations, and does
not constitute, nor shall it be construed as, Landlord's consent to the
installation thereof). Notwithstanding anything to the contrary contained
herein, Landlord shall not require Tenant to remove any A/C Units installed
in the Demised Premises as part of Landlord's Work.
C. In any case where Tenant removes any property or Alterations
in accordance with Subsections A and B above, or otherwise, Tenant shall
immediately repair all damage caused by said removal and shall restore the
Demised Premises to good order and condition (normal wear and tear
excepted) at Tenant's expense, and if Tenant fails to do so, Landlord may
do so at Tenant's cost and Tenant shall reimburse Landlord therefor upon
demand.
D. Upon failure of Tenant to remove any property or Alterations
in accordance with Subsections A and B above on or prior to the Expiration
Date, Landlord may, at Tenant's expense: (i) remove all such property and
Alterations which Landlord may require Tenant to remove pursuant to
Subsections A and B above, (ii) cause the same to be placed in storage, and
(iii) repair any damage caused by said removal and restore the Demised
Premises to good order and condition. Tenant shall, upon demand and as
additional rent, reimburse Landlord for all of the aforesaid expenses.
E. Notwithstanding anything to the contrary contained in this
Section 5.06, any items of property or Alterations not removed by Tenant
may, at the election of Landlord, be deemed to have been abandoned by
Tenant, and Landlord may retain and dispose of said items without any
liability to Tenant and without accounting to Tenant for the proceeds
thereof; provided, however, that if Landlord shall sell or dispose of such
items of Tenant's Property or Alterations abandoned by Tenant, Landlord
shall offset the proceeds thereof, if any, less any costs and expenses
incurred by Landlord in connection with such sale or disposal, against any
sums due and owing by Tenant to Landlord under this Lease.
F. The provisions of this Section 5.06 shall survive the
expiration or sooner termination of the Term, whereupon any and all
monetary obligations of Tenant pursuant thereto shall be deemed damages
recoverable by Landlord.
Section 5.07. If Tenant shall fail to comply with any provision of
this Article 5 (beyond notice and the expiration of any applicable cure
period provided in this Lease), Landlord, in addition to any other remedy
herein provided, may require Tenant to immediately cease all work being
performed in the Building by or on behalf of Tenant, and Landlord may deny
access to the Demised Premises to any person performing work or supplying
materials in the Demised Premises.
ARTICLE 6
---------
REPAIRS AND MAINTENANCE
Section 6.01. Tenant shall take good care of the Demised Premises and
the fixtures, glass, appurtenances and equipment therein (including, all
horizontal portions of the Building Systems that are located within the
Demised Premises (except for the perimeter heating units), and expressly
including any sprinkler loop and distribution pipes and heads, any
ventilation and air-conditioning equipment and any private bathrooms in or
appurtenant to the Demised Premises, all of which Landlord represents are
in good working order and condition as of the date hereof), and, at
Tenant's sole cost and expense, shall make all Repairs as and when needed
to preserve them in good working order and condition, whether or not such
Repairs are ordinary or extraordinary, or foreseen or unforeseen at this
time, and whether or not such Repairs pertain to improvements in the
Demised Premises furnished or installed by Landlord, but excluding Repairs
to the rough floor, the rough ceiling, exterior walls, including exterior
windows, or load-bearing columns, unless required under the provisions of
following sentence. All damage or injury to the Demised Premises, or to the
Building or the Building Systems outside of the Demised Premises, caused by
or arising from the negligence of Tenant, or of Persons Within Tenant's
Control, including those which are structural, extraordinary and
unforeseen, shall be promptly repaired, restored or replaced by Tenant, at
Tenant's own cost and expense. All Repairs shall be in quality and class
equal to or better than the original work or installations, and shall be
performed in good and workmanlike manner, using Building standard or higher
quality materials.
Section 6.02. Landlord, at Landlord's expense, shall make or cause to
be made all Repairs, structural and otherwise, necessary to keep in good
order and repair the exterior of the Building and the public portions of
the Building, and such portions of the Building Systems that serve the
Demised Premises, in each case other than those required to be made by
Tenant as provided in Section 6.01, Article 7 or any other provision of
this Lease. There shall be no allowance to Tenant for a diminution of
rental value or interruption of business, and no liability on the part of
Landlord, by reason of inconvenience, annoyance or injury to business
arising from Landlord, Tenant or others making any Repairs or Alterations
in or to any portion of the Building or Building Systems or the Demised
Premises. Landlord shall promptly proceed until completion with the
performance of the foregoing Repairs and Alterations, and shall use
commercially reasonable efforts to minimize interference with Tenant's
business operations at the Demised Premises in performing any such Repairs
or Alterations; provided, however, that Landlord shall have no obligation
to employ contractors or labor at overtime or premium rates or to incur any
other overtime costs or expenses in connection with the performance of such
Repairs and Alterations. Landlord shall operate and maintain the Building
in accordance with the standards customarily followed in the operation and
maintenance of Comparable Buildings.
Section 6.03. If any Insurance Boards or Legal Requirements shall
require or recommend installation of fire extinguishers or of a "sprinkler
system" or any other fire protection devices, or any changes,
modifications, alterations or additions thereto for any reason,
attributable to Tenant's manner of use of the Demised Premises (as
distinguished from Tenant's mere use of the Demised Premises for the
Authorized Use), or if any such installation or equipment becomes necessary
to prevent the imposition of a penalty or charge against the full allowance
for a sprinkler or fire extinguishing system in the fire insurance rate as
fixed by Insurance Boards, or by any fire insurance company, and provided
that the necessity for the same shall be attributable to Tenant's manner of
use of the Demised Premises (as distinguished from Tenant's mere use of the
Demised Premises for the Authorized Use), then Tenant, at Tenant's expense,
shall promptly make such installation within the Demised Premises and
supply such changes, modifications, alterations, additions or other
equipment. In the event that (i) Tenant shall fail to perform the work
required pursuant to the preceding sentence, and/or (ii) if due to the
nature of such work, Landlord requires that such work be performed by
Landlord, Landlord shall make any such installation (including sprinklers,
stair pressurizers, water towers), or any such change, modification,
alteration or additions outside of the Demised Premises (such as, without
limitation, in the common area), and Tenant shall reimburse Landlord, as
additional rent, an amount equal to Tenant's Proportionate Share of the
reasonable cost thereof. Such reimbursement shall be made by Tenant within
thirty (30) days after written notice to Tenant of such amount.
Section 6.04. In any case where Tenant shall be required to make
Repairs or perform any work pursuant to this Article and such Repairs or
work shall affect the Building Systems or areas outside of the Demised
Premises, Landlord may, in Landlord's discretion, elect to make such
Repairs or to perform such work for and on behalf of Tenant, but at
Tenant's reasonable and actual cost and expense, provided that Landlord
shall competitively bid such work. In such event, Tenant shall reimburse
Landlord as additional rent for the reasonable and actual cost of such
Repairs and/or work within thirty (30) days after Landlord shall furnish a
statement to Tenant of the amount thereof.
Section 6.05. Tenant shall maintain the Demised Premises and the areas
appurtenant thereto (including any permitted signs or cameras) in a clean
and orderly condition that is consistent with the use and appearance of the
Building. If Tenant shall fail to so maintain the Demised Premises or
appurtenant areas to the satisfaction of Landlord, then Landlord shall have
the right, on ten (10) days written notice to Tenant (except in an
emergency, in which case no notice shall be required) and at Tenant's sole
cost and expense, to enter into the Demised Premises and such appurtenant
areas for the express purpose of rectifying the condition thereof and
restoring the Demised Premises and such appurtenant areas to the condition
and appearance required hereunder; provided, however, that Landlord shall
not store in the Demised Premises any materials used in connection with the
making of any Repairs.
ARTICLE 7
---------
COMPLIANCE WITH LAW
Section 7.01.
------------
A. Tenant shall not do, and shall not permit Persons Within
Tenant's Control to do, any act or thing in or upon the Demised Premises or
the Building which will invalidate or be in conflict with the certificate
of occupancy for the Demised Premises or the Building, or violate any Legal
Requirements. Tenant shall, at Tenant's cost and expense, comply with all
Legal Requirements (including Local Laws No. 5 of 1973, No. 16 of 1984 and
No. 58 of 1988, each as modified and supplemented from time to time under
the Administrative Code as applicable to the Demised Premises, and, subject
to the provisions of Section 11.06 below, all Legal Requirements relating
to asbestos) which shall with respect to the Demised Premises or with
respect to any abatement of nuisance (including the removal, containment,
transportation and disposal of asbestos, subject to the provisions of said
Section 11.06), impose any violation, order or duty upon Landlord or Tenant
arising from, or in connection with, the Demised Premises, Tenant's manner
of use of the Demised Premises (as distinguished from Tenant's mere use of
the Demised Premises for the Authorized Use), or any installations made by
or on behalf of Tenant therein, or required by reason of a breach of any of
Tenant's covenants or agreements hereunder, whether or not such Legal
Requirements shall now be in effect or hereafter enacted or issued, and
whether or not any work required shall be ordinary or extraordinary or
foreseen or unforeseen at the date hereof.
B. Notwithstanding anything to the contrary contained in this
Lease, Tenant shall be responsible for the cost of all present and future
compliance with The Americans with Disabilities Act of 1990, Public Law
101-336, 42 U.S.C. ss. 12101 et seq. (herein called the "Disabilities Act")
in respect of the Demised Premises, except that Tenant shall not hereby be
under any obligation to comply with the Disabilities Act to the extent that
the same shall require Tenant to make any structural alterations within the
Demised Premises (i.e., alterations to the slab, support columns and
facade) or to make any modifications to Building Systems located within the
Demised Premises, unless the necessity for such structural alteration or
modification to Building Systems located within the Demised Premises arises
from (i) Tenant's manner of use of the Demised Premises (as distinguished
from Tenant's mere use of the Demised Premises for the Authorized Use),
(ii) the manner of conduct of Tenant's business at the Building, (iii)
Tenant's installations, equipment or other property therein or the
operation thereof, (iv) any cause or condition created by or at the
instance of Tenant (as distinguished from Tenant's mere use of the Demised
Premises for the Authorized Use), or (v) the breach of any of Tenant's
obligations under this Lease. In addition, Tenant shall be responsible for
the cost of all present and future compliance with the Disabilities Act
with respect to areas of the Land and Building outside the Demised
Premises, but only if and to the extent that compliance with the
requirements for such present and future compliance arises from (I)
Tenant's manner of use of the Demises Premises (as distinguished from
Tenant's mere use of the Demised Premises for the Authorized Use), (II) the
manner of conduct of Tenant's business at the Building, (III) Tenant's
installations, equipment or other property therein or the operation
thereof, (IV) any cause or condition created by or at the instance of
Tenant (as distinguished from Tenant's mere use of the Demised Premises for
the Authorized Use), or (V) the breach of any of Tenant's obligations under
this Lease. Tenant expressly acknowledges and agrees that, for the purposes
of this Subsection 7.01B as well as all other provisions of this Lease, the
elevator lobbies, but not the elevators, and all bathrooms on the 22nd
floor shall be deemed to be part of the Demised Premises.
C. Tenant shall not cause or permit any Hazardous Materials
(hereinafter defined) to be used, stored, transported, released, handled,
produced or installed in, on or from the Demised Premises or the Building;
provided, however, that the foregoing prohibition shall not apply to
standard office supplies in reasonable quantities for routine office use,
if and to the extent permitted by applicable Legal Requirements. The term
"Hazardous Materials", as used herein, shall mean any flammables,
explosives, radioactive materials, hazardous wastes, hazardous and toxic
substances or related materials, asbestos or any material containing
asbestos, or any other substance or material included in the definition of
"hazardous substances", "hazardous wastes", "hazard materials", "toxic
substances", "contaminants" or any other pollutant, or otherwise regulated
by any federal, state or local environmental law, ordinance, rule or
regulation, including the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended, the Hazardous Materials
Transportation Act, as amended, and the Resource Conservation and Recovery
Act, as amended, and in the regulations adopted and publications
promulgated pursuant to each of the foregoing Acts. In the event of a
violation of any of the foregoing provisions of this Subsection 7.01C,
Landlord may, without notice and without regard to any grace or cure period
contained elsewhere in this Lease, take all remedial action deemed
necessary by Landlord to correct such condition, and Tenant shall reimburse
Landlord for the cost thereof, upon demand, as additional rent.
Section 7.02. If Tenant shall receive notice of any violation of any
Legal Requirements applicable to the Demised Premises, Tenant shall give
prompt notice thereof to Landlord.
Section 7.03. Tenant shall also be obligated to comply with any Legal
Requirements requiring any structural Alteration of the Demised Premises,
but only if such Alteration shall be required by reason of (i) a condition
which has been created by, or at the instance of, Tenant or Persons Within
Tenant's Control, (ii) the manner of use to which Tenant or Persons Within
Tenant's Control puts the Demised Premises (as distinguished from Tenant's
mere use of the Demised Premises for the Authorized Use), (iii) the manner
of conduct of Tenant's business, (iv) Tenant's installations, equipment or
other property therein or the operation thereof, or (v) a breach of any of
Tenant's covenants and agreements hereunder.
Section 7.04. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure
to secure such license or permit would, in any way, affect Landlord or the
Building, then Tenant, at Tenant's expense, shall promptly procure and
thereafter maintain, submit for inspection by Landlord, and at all times
comply with the terms and conditions of, each such license or permit.
Section 7.05. If an excavation shall be made upon the land adjacent to
or under the Building, or shall be authorized or contemplated to be made,
Tenant shall afford to the person causing or authorized to cause such
excavation license to enter upon the Demised Premises, at reasonable times
and upon reasonable notice to Tenant, for the purpose of doing such work as
said person shall deem necessary or desirable to preserve the Building from
injury or damage and to support the same by proper foundations without any
claim for damages or indemnity against Landlord, or diminution or abatement
of rent.
Section 7.06. Tenant shall not clean, or permit, suffer or allow to be
cleaned, any windows in the Demised Premises from the outside in violation
of Section 202 of the Labor Law or any other Legal Requirements.
ARTICLE 8
---------
INSURANCE
Section 8.01. Tenant shall not do or permit to be done any act or
thing in or upon the Demised Premises which will invalidate or be in
conflict with the terms of the New York State standard form of fire
insurance with extended coverage, or with rental, liability, boiler,
sprinkler, water damage, war risk or other insurance policies covering the
Building and the fixtures and property therein (hereinafter referred to as
"Building Insurance"); and Tenant, at Tenant's own expense, shall comply
with all rules, orders, regulations and requirements of all Insurance
Boards, and shall not do or permit anything to be done in or upon the
Demised Premises or bring or keep anything therein or use the Demised
Premises in a manner which increases the rate of premium for any of the
Building Insurance or any property or equipment located therein over the
rate in effect at the commencement of the Term. Landlord agrees that, for
purposes of this Section 8.01, Tenant's use of the Demised Premises for
executive and administrative office use, shall not, in and of itself, be
deemed to invalidate or be in conflict with or cause an increase in the
rate of premium for any of the Building Insurance.
Section 8.02.
------------
A. If, by reason of Tenant's default under this Lease, the rate
of premium for Building Insurance or other insurance on the property and
equipment of Landlord or any other tenant or subtenant in the Building
shall be higher than it otherwise would be, Tenant shall reimburse Landlord
and/or such other tenants or subtenants in the Building for that part of
the insurance premiums thereafter paid by Landlord or by the other tenants
or subtenants in the Building which shall have been charged because of such
default by Tenant. Tenant shall make said reimbursement on the first day of
the month following such payment by Landlord or such other tenants or
subtenants.
B. In any action or proceeding wherein Landlord and Tenant are
parties, a schedule or "make-up" of any insurance rate for the Building or
Demised Premises issued by any Insurance Board establishing insurance
premium rates for the Building shall be prima facie evidence of the facts
therein stated and of the several items and charges in the insurance
premium rates then applicable to the Building.
Section 8.03.
------------
A. Tenant shall, at Tenant's own cost and expense, obtain,
maintain and keep in force during the entire Term, for the benefit of
Landlord, Overlandlord and Tenant, in the manner set forth in Section 8.03
below, the following insurance coverages: (i) commercial general liability
insurance (including premises operation, bodily injury, personal injury,
death, independent contractors' liability, owner's protective liability,
products and completed operations liability, broad form contractual
liability and broad form property damage coverages) in a combined single
limit amount of not less than $3,000,000, against all claims, demands or
actions with respect to damage, injury or death made by or on behalf of any
person or entity, arising from or relating to the conduct and operation of
Tenant's business in, on or about the Demised Premises (which shall include
Tenant's signs, if any), or arising from or related to any act or omission
of Tenant or of Persons Within Tenant's Control; (ii) during the course of
construction of any Tenant's Alterations and until completion thereof,
Builder's Risk insurance on an "all risk" basis (including collapse) on a
completed value (non-reporting) form for full replacement value covering
the interests of Landlord and Tenant (and their respective contractors and
subcontractors) in all work incorporated into the Building by or on behalf
of Tenant and all materials and equipment located in or about the Demised
Premises; (iii) Workers' Compensation Insurance, as required by law; and
(iv) if Tenant shall install or maintain one or more boilers or other
pressure vessels to serve the Demised Premises or Tenant's operations
thereat, Tenant shall, at Tenant's own cost and expense, obtain, maintain
and keep in force, for the benefit of Landlord, Overlandlord and Tenant,
appropriate insurance coverage thereof in an amount not less than
$1,000,000 (it being understood and agreed, however, that the foregoing
shall not be deemed a consent by Landlord to the installation and/or
maintenance of any boilers or other pressure vessels in the Demised
Premises, which installation and/or maintenance shall at all times be
subject to the prior written consent of Landlord). All such insurance shall
contain only such "deductibles" or "retentions" as Landlord shall
reasonably approve. In addition, prior to any entry upon the Demised
Premises by Tenant or by any Person Within Tenant's Control, Tenant shall
deliver or cause to be delivered to Landlord certificates evidencing that
all insurance required hereunder is in full force and effect. Whenever, in
Landlord's reasonable judgment, good business practice and changing
conditions indicate a need for additional or different types of insurance
coverage, taking into account the insurance coverage then being required by
landlords of Comparable Buildings, Tenant shall, upon Landlord's request,
promptly obtain such insurance coverage, at Tenant's expense.
B. Tenant, at Tenant's own cost and expense, shall maintain
insurance protecting and indemnifying Landlord, the managing agent of the
Building, Tenant and Overlandlord against any and all damage to or loss of
Tenant's Alterations, equipment, furnishings, furniture, fixtures and
contents in the Demised Premises or the Building (including all portions of
the Building Systems that are located within the Demised Premises, and
expressly including any sprinkler loop and distribution pipes and heads,
any ventilation and air-conditioning equipment and any private bathrooms in
or appurtenant to the Demised Premises), and all claims and liabilities
relating thereto.
C. Landlord, Overlandlord and the managing agent of the Building
shall be named as insureds in said policies and shall be protected against
all liability occasioned by an occurrence insured against. All said
policies of insurance shall be: (i) written as "occurrence" policies, (ii)
written as primary policy coverage and not contributing with or in excess
of any coverage which Landlord, Overlandlord or the managing agent of the
Building may carry, (iii) written in form and substance reasonably
satisfactory to Landlord, and (iv) issued by insurance companies then rated
not less than A:XII in Best's insurance reports, and which are licensed to
do business in the State of New York. Tenant shall, prior to the
Commencement Date, deliver to Landlord the policies of insurance or
certificates thereof, together with evidence of payment of premiums
thereon, and shall thereafter furnish to Landlord, at least thirty (30)
days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate in lieu thereof, with evidence of the payment
of premiums thereon. Each of said policies shall also contain a provision
whereby the insurer agrees not to cancel, diminish or materially modify
said insurance policy(ies) without having given Landlord, Overlandlord and
the managing agent of the Building at least thirty (30) days prior written
notice thereof, by certified mail, return receipt requested.
D. Tenant shall pay all premiums and charges for all of said
policies, and, if Tenant shall fail to make any payment when due or carry
any such policy, Landlord may, but shall not be obligated to, make such
payment or carry such policy, and the amount paid by Landlord, with
interest thereon at the Interest Rate, shall be repaid to Landlord by
Tenant within ten (10) days after Landlord's demand therefor, and all such
amounts so repayable, together with such interest, shall be deemed to
constitute additional rent hereunder. Payment by Landlord of any such
premium, or the carrying by Landlord of any such policy, shall not be
deemed to waive or release the default of Tenant with respect thereto.
E. Notwithstanding and without regard to the limits of insurance
specified in this Section 8.03, Tenant agrees to defend, protect, indemnify
and hold harmless Landlord, Overlandlord and the managing agent of the
Building, and the agents, partners, shareholders, directors, officers and
employees of Landlord, Overlandlord and the managing agent of the Building,
from and against all claims, damage, loss, liability, cost and expense
(including engineer's, architects' and attorneys' fees and disbursements)
resulting from any of the risks referred to in Section 8.03A. The foregoing
obligation of Tenant shall be and remain in full force and effect whether
or not Tenant has placed and maintained the insurance specified in this
Section 8.03, and whether or not proceeds from such insurance (such
insurance having been placed and maintained) actually are collectible from
one or more of the aforesaid insurance companies; provided, however, that
Tenant shall be relieved of its obligation of indemnity herein pro tanto of
the amount actually recovered by Landlord from one or more of said
insurance companies by reason of injury, damage or loss sustained on the
Demised Premises. If any action or proceeding shall be brought against
Landlord or any of the other indemnified parties in connection with any
matter which is the subject of the foregoing indemnity, Tenant, upon notice
from Landlord, shall resist and defend such action or proceeding at
Tenant's expense by counsel reasonably satisfactory to Landlord, without
any disclaimer of liability in connection therewith. In any legal
proceeding between Landlord and Tenant pursuant to this Lease, the losing
party shall reimburse the prevailing party for out-of-pocket payments for
court costs and reasonable attorneys' fees and disbursements in
instituting, prosecuting, or defending any proceeding actually paid by the
prevailing party in connection with such proceeding.
F. Landlord shall carry insurance in at least the minimum amounts
as may be required by any Mortgagee, insuring the Building against loss,
damage, or destruction by fire or other casualty. If and to the extent that
there shall be no Mortgagee, Landlord shall carry insurance in amounts as
customarily carried by landlords of Comparable Buildings.
Section 8.04.
------------
A. Landlord shall cause each policy carried by Landlord insuring
the Building against loss, damage, or destruction by fire or other
casualty, and Tenant shall cause each insurance policy carried by Tenant
and insuring the Demised Premises and Tenant's Alterations, leasehold
improvements, equipment, furnishings, fixtures and contents against loss,
damage, or destruction by fire or other casualty, to be written in a manner
so as to provide that the insurance company waives all rights of recovery
by way of subrogation against Landlord or Tenant in connection with any
loss or damage covered by any such policy. Neither party shall be liable to
the other for the amount of such loss or damage which is in excess of the
applicable deductible, if any, caused by fire or any of the risks
enumerated in its policies, provided that such waiver was obtainable at the
time of such loss or damage. However, if such waiver cannot be obtained, or
shall be obtainable only by the payment of an additional premium charge
above that which is charged by companies carrying such insurance without
such waiver of subrogation, then the party undertaking to obtain such
waiver shall notify the other party of such fact, and such other party
shall have a period of ten (10) days after the giving of such notice to
agree in writing to pay such additional premium if such policy is
obtainable at additional cost (in the case of Tenant, pro rata in
proportion of Tenant's rentable area to the total rentable area covered by
such insurance); and if such other party does not so agree or the waiver
shall not be obtainable, then the provisions of this Section 8.04 shall be
null and void as to the risks covered by such policy for so long as either
such waiver cannot be obtained or the party in whose favor a waiver of
subrogation is desired shall refuse to pay the additional premium. If the
release of either Landlord or Tenant, as set forth in the second sentence
of this Section 8.04, shall contravene any law with respect to exculpatory
agreements, the liability of the party in question shall be deemed not
released, but no action or rights shall be sought or enforced against such
party unless and until all rights and remedies against the other's insurer
are exhausted and the other party shall be unable to collect such insurance
proceeds.
B. The waiver of subrogation referred to in Subsection 8.04A
above shall extend to the agents and employees of each party, but only if
and to the extent that such waiver can be obtained without additional
charge (unless such party shall pay such charge). Nothing contained in this
Section 8.04 shall be deemed to relieve either party from any duty imposed
elsewhere in this Lease to repair, restore and rebuild.
Section 8.05. In the event of any permitted sublease or occupancy (by
a person other than Tenant) of all or a portion of the Demised Premises,
all of the covenants and obligations on the part of Tenant set forth in
this Article 8 shall bind and be fully applicable to the subtenant or
occupant (as if such subtenant or occupant were Tenant hereunder) for the
benefit of Landlord.
ARTICLE 9
---------
DAMAGE OR CASUALTY
Section 9.01. If the Demised Premises or any part thereof shall be
damaged by fire or other insured casualty and Tenant shall give prompt
written notice thereof to Landlord, then Landlord shall, subject to the
provisions of Sections 9.02 and 9.03, proceed with commercially reasonable
diligence to repair or cause to be repaired such damage at Landlord's
expense, but in no event greater than the scope of Landlord's construction
of the Demised Premises on the commencement of the Term. If the Demised
Premises, or any part thereof, other than a de minimis part, shall be
rendered untenantable , or if Tenant shall be denied access to the Demised
Premises (it being agreed that Tenant shall be deemed to have been denied
access to the Demised Premises if there is no elevator service to the
Demised Premises) as a result of fire or other insured casualty by reason
of such damage and such damage shall not be due to the gross negligence or
willful misconduct of Tenant or of Persons Within Tenant's Control, then
the Minimum Rent hereunder, or an amount thereof apportioned according to
the area of the Demised Premises so rendered untenantable (if less than the
entire Demised Premises shall be so rendered untenantable), shall be abated
for the period from the date of such damage to the earlier of (i) the
ninetieth (90th) day following the date when the damage shall have been
repaired as aforesaid and possession of the Demised Premises (or said
portion thereof) delivered to Tenant or (ii) the date Tenant shall first
reoccupy the Demised Premises for the purpose of the regular conduct of
Tenant's business operations therein. Tenant covenants and agrees to
cooperate in all reasonable respects with Landlord, Overlandlord and any
Mortgagee in their efforts to collect insurance proceeds (including rent
insurance proceeds) payable to such parties. Landlord shall not be liable
for any delay which may arise by reason of adjustment of insurance on the
part of Landlord and/or Tenant, or any cause beyond the control of Landlord
or contractors employed by Landlord.
Section 9.02. Other than as set forth in Section 9.01 above, Landlord
shall not be liable for any inconvenience or annoyance to Tenant or injury
to the business of Tenant resulting in any way from damage from fire or
other casualty or the repair thereof except if and to the extent such
inconvenience, annoyance, or injury is caused by the gross negligence or
willful misconduct of Landlord (and is not otherwise subject to the
provisions of Section 8.04 above). Tenant understands that Landlord, in
reliance upon the provisions set forth in Section 8.03, will not carry
insurance of any kind on Tenant's furnishings, furniture, contents,
fixtures, equipment, Alterations and leasehold improvements (including all
portions of the Building Systems that are located within the Demised
Premises, and expressly including any sprinkler loop and distribution pipes
and heads, any ventilation and air-conditioning equipment and any private
bathrooms in or appurtenant to the Demised Premises), and that Landlord
shall not be obligated to repair any damage thereto or replace the same.
Section 9.03.
------------
A. Notwithstanding anything to the contrary contained in Sections
9.01 and 9.02 above, in the event that:
(i) the Building shall be also damaged by such fire or other
casualty so that substantial alteration or reconstruction of the Building
shall, in Landlord's sole and unfettered opinion, be required (whether or
not the Demised Premises shall have been damaged by such fire or other
casualty and without regard to the structural integrity of the Building and
provided that, if the Demised Premises shall not have been damaged,
Landlord shall terminate all other leases for space in the same elevator
bank as the Demised Premises (excluding space occupied by Landlord or any
affiliate of Landlord)), or
(ii) the Demised Premises are totally or substantially
damaged or are rendered wholly or substantially untenantable, or
(iii) there is any damage to the Demised Premises within the
last two (2) years of the Term, and the cost of repair exceeds an amount
equal to three (3) monthly installments of Minimum Rent,
then Landlord may, in Landlord's sole and absolute discretion, terminate
this Lease and the term and estate hereby granted, by notifying Tenant in
writing of such termination within ninety (90) days after the date of such
damage. In the event that such a notice of termination shall be given, then
this Lease and the term and estate hereby granted shall expire as of the
date of termination stated in said notice with the same effect as if that
were the date hereinbefore set for the expiration of the Term, and the
Minimum Rent and additional rent hereunder shall be apportioned as of such
date.
B. If the Demised Premises shall be damaged or shall be rendered
untenantable as a result of fire or other casualty during the Term hereof,
then, within sixty (60) days following the date on which Tenant shall have
given notice to Landlord (such sixty (60) day period being hereinafter
referred to as the "Estimate Procurement Period"), in accordance with the
provisions of Section 9.01, of such damage or untenantability, and provided
further that such notice shall state in bold, capital letters at the top:
"IN ACCORDANCE WITH THE PROVISIONS OF SUBSECTION 9.03B OF THE LEASE, TENANT
REQUESTS THAT LANDLORD NOTIFY TENANT AS TO LANDLORD'S CONTRACTOR'S ESTIMATE
AS TO TIME REQUIRED TO REPAIR THE DEMISED PREMISES . TENANT MAY TERMINATE
THE LEASE IF LANDLORD FAILS TO RESPOND TO THIS NOTICE WITHIN SIXTY (60)
DAYS.", then Landlord shall deliver to Tenant an estimate prepared by a
contractor selected by Landlord setting forth such contractor's estimate as
to the time reasonably required to repair such damage (the "Contractor's
Estimate"). If (i) Landlord fails to deliver the Contractor's Estimate
during the Estimate Procurement Period; or (ii) the period to repair set
forth in such Contractor's Estimate shall exceed two hundred seventy (270)
days; or (iii) Landlord fails to complete such repairs within two hundred
seventy (270) days from the date of the fire or other casualty, which
period, however, shall be extended by the number of days, if any, as shall
equal the aggregate number of days that Landlord may have been delayed in
making such repairs and restoration by reason of labor trouble,
governmental controls, act of God, adjustment of insurance loss or any
other cause beyond Landlord's reasonable control, but in no event more than
three hundred sixty five (365) days from the date of the fire or other
casualty (the "Casualty Repair Period"), then, in any of the above cases,
Tenant may elect to terminate this Lease by notice (the "Casualty
Termination Notice") to Landlord given not later than: (x) thirty (30) days
following the expiration of the Estimate Procurement Period with respect to
clause (i) of this Subsection 9.03C; (y) sixty (60) days following delivery
to Tenant of the Contractor's Estimate with respect to clause (ii) of this
Subsection 9.03C; and (z) ten (10) days following the expiration of the
Casualty Repair Period with respect to clause (iii) of this Subsection
9.03C (time being of the essence with respect to such thirty (30) day and
ten (10) day periods). In the event that Landlord shall have failed to
complete such repairs within the Casualty Repair Period and Tenant shall
have elected to terminate this Lease pursuant to the provisions of clause
(iii) of this Subsection 9.03C, then, notwithstanding Tenant's delivery of
the Casualty Termination Notice, if Landlord shall have substantially
completed the repairs or restoration to the Demised Premises, and Landlord
shall tender to Tenant possession of the Demised Premises within five (5)
Business Days following Landlord's receipt of the Casualty Termination
Notice, then Tenant's Casualty Termination Notice shall be null and void
and of no force and effect.
Section 9.04. Except as may be provided in Section 8.04, nothing
herein contained shall relieve Tenant from any liability to Landlord or to
Landlord's insurers in connection with any damage to the Demised Premises
or the Building by fire or other casualty if Tenant shall be legally liable
in such respect.
Section 9.05. Tenant shall throughout the Term provide fire wardens
and searchers as required under NYC Local Law No. 5 of 1973, as heretofore
and/or hereafter amended.
Section 9.06. Tenant shall give Landlord notice of the occurrence of
any fire, casualty or other accident in the Demised Premises promptly after
Tenant becomes aware thereof.
Section 9.07. This Lease shall be considered an express agreement
governing any case of damage to or destruction of the Building or any part
thereof by fire or other casualty, and Section 227 of the Real Property Law
of the State of New York (providing for such a contingency in the absence
of express agreement), and any other law of like import now or hereafter in
force, shall have no application in such case.
ARTICLE 10
----------
ASSIGNMENT AND SUBLETTING
Section 10.01.
-------------
A. As a material inducement to Landlord to enter into this Lease,
Tenant covenants and agrees, for Tenant and Tenant's heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
that neither this Lease nor the term and estate hereby granted, nor any
part hereof or thereof, will be assigned, mortgaged, pledged, encumbered or
otherwise transferred, by operation of law or otherwise, and that neither
the Demised Premises, nor any part thereof, will be sublet or occupied by
anyone other than Tenant, or for any purpose other than as hereinbefore set
forth, without the prior written consent of Landlord (which consent, unless
expressly provided to the contrary in this Article 10, shall not be
unreasonably withheld or conditioned or unduly delayed; provided that the
criteria and/or conditions set forth in Section 10.03 and, in the case of
an assignment, Section 10.4 and, in the case of a sublease, Section 10.05,
shall be satisfied) in every case.
B. The direct or indirect transfer of fifty (50%) percent or more
(aggregating all multiple and/or prior transfers) of: (i) the shares of a
corporate tenant, or (ii) the shares of any corporation of which Tenant is
an immediate or remote subsidiary, or (iii) the beneficial or legal
interests of a tenant that is a business entity other than a corporation,
in each case including transfers by operation of law, and including a
related or unrelated series of transactions, shall be deemed an assignment
of this Lease for the purposes of this Article 10. For the purposes hereof,
"shares" of a corporate tenant or other corporation shall be deemed to
include: (x) the issued and outstanding shares of any class of the voting
stock of a corporation, and/or (y) the issued and outstanding shares of any
class of convertible non-voting stock, debentures or securities of a
corporation. Issuance of new corporate shares of a corporation or
partnership interests by a partnership, and/or the issuance of a new class
of voting stock or convertible non-voting stock or debentures or securities
of a corporation which results in a transfer of control of that
corporation, or the execution of an agreement affecting the power to vote
fifty (50%) percent or more of the issued and outstanding shares of any
class of stock or securities of a corporation, shall each be deemed to be a
"transfer" for the purposes hereof. In implementation of the foregoing
provisions (but subject to the provisions of Subsection 10.02C below), if
Tenant shall be a corporation, then, unless the stock of Tenant is publicly
traded, within ten (10) days following Landlord's written request therefor,
Tenant shall furnish to Landlord a statement verified by a principal
officer of Tenant setting forth the details of the then present ownership
and all prior transfers of the issued and outstanding stock of the
corporation, and such other information relating to such stock ownership
and transfer of stock or securities as Landlord may reasonably request in
such notice.
Section 10.02.
-------------
A. Tenant may assign or sublet all or part of the Demised
Premises to a corporation or other business entity which controls, is
controlled by or is under common control with, Tenant (herein referred to
as a "Related Corporation"), without being required to obtain Landlord's
prior written consent thereto, provided that: (i) Tenant shall not then be
in default in any of its monetary obligations hereunder or in default
(after notice and the expiration of the applicable cure period) with
respect to any of Tenant's material obligations under this Lease, (ii) not
less than fifteen (15) days prior to such subletting, Tenant shall notify
Landlord of such intended sublet and shall furnish Landlord with the name
of such Related Corporation, together with a certification of Tenant, and
such other proof as Landlord may reasonably request, that such subtenant is
a Related Corporation of Tenant, (iii) in the reasonable judgment of
Landlord, the proposed subtenant is of a character which is in keeping with
the standards of Landlord for the Building, (iv) for the entire term of
such sublease, the subtenant thereunder shall continue to be a Related
Corporation of Tenant and (v) in the case of an assignment, the Related
Corporation shall have assets, capitalization and a net worth, as
determined in accordance with generally accepted accounting principles and
certified to Landlord by an independent certified public accountant, at
least equal to the assets, capitalization and net worth, similarly
determined, of Tenant as of the date of this Lease. In connection with the
information to be provided to Landlord pursuant to this Subsection 10.02A,
Landlord shall have the right, at any reasonable time and from time to
time, to examine such books and records of Tenant as may be necessary to
establish that such subtenant remains a Related Corporation of Tenant. Such
assignment or subletting shall not be deemed to vest in any such Related
Corporation any right or interest in this Lease, nor shall it relieve,
release, impair or discharge any of Tenant's obligations hereunder. For the
purposes of this Article 10, the term "control" shall be deemed to mean
ownership of more than fifty (50%) percent of all of the voting stock of
such corporation, or more than fifty (50%) percent of all of the legal and
equitable interest in any other business entity.
B. Upon not less than twenty (20) days prior written notice to
Landlord, and subject to Tenant's compliance with all of the requirements
set forth in this Subsection 10.02B, Tenant may assign or sublet all or
part of Tenant's entire interest in this Lease and the leasehold estate
hereby created to a "Successor Corporation" of Tenant (as hereinafter
defined) without being required to obtain Landlord's prior consent thereto,
provided that: (i) Tenant shall not then be in default in any of its
monetary obligations hereunder or in default (after notice and the
expiration of the applicable cure period) with respect to any of Tenant's
material obligations under this Lease, and (ii) the proposed assignee shall
not be entitled, directly or indirectly, to diplomatic or sovereign
immunity, and shall be subject to the service of process in, and the
jurisdiction of the courts of, the State of New York. The term "Successor
Corporation" shall mean any of the following: (x) a corporation into which
or with which Tenant shall be merged or consolidated, in accordance with
applicable statutory provisions for the merger or consolidation of
corporations, provided that (whether by operation of law or by effective
provisions contained in the instruments of merger or consolidation) the
liabilities of the corporations participating in such merger or
consolidation are assumed by the corporation surviving such merger or
consolidation; or (y) a corporation or other entity acquiring this Lease
and the term hereof and the estate hereby granted, the goodwill and all or
substantially all of the other property of Tenant and/or assets of Tenant,
or all or substantially all of the stock of Tenant, and assuming all or
substantially all of the liabilities of Tenant; or (z) any corporate
successor to a Successor Corporation becoming such by either of the methods
described in clauses (x) and (y) above; provided that, in each case: (1)
such merger or consolidation, or such acquisition and assumption, as the
case may be, shall be made for a valid business purpose other than (and not
principally for) the purpose of transferring the leasehold estate created
hereby, (2) immediately after giving effect to any such merger or
consolidation, or such acquisition and assumption, as the case may be, the
corporation surviving such merger or created by such consolidation or
acquiring such assets and assuming such liabilities, as the case may be,
shall have assets, capitalization and a net worth, as determined in
accordance with generally accepted accounting principles and certified to
Landlord by an independent certified public accountant, at least equal to
the lesser of (I) the assets, capitalization and net worth, similarly
determined, of Tenant (a) as of the date of this Lease or (b) immediately
prior to such merger or consolidation or such acquisition and assumption,
whichever shall be greater and (II) Sixty Million and 00/100
($60,000,000.00) Dollars, and (3) proof reasonably satisfactory to Landlord
of such business purpose, assets, capitalization and net worth shall have
been delivered to Landlord at least ten (10) days prior to the effective
date of any such transaction. The acquisition by Tenant of all or
substantially all of the assets, together with the assumption of all or
substantially all of the obligations and liabilities of any corporation or
other business entity, shall be deemed to be a merger for the purposes of
this Article 10.
C. The transfer of the outstanding capital stock of any corporate
tenant shall not be deemed an assignment of this Lease (and Tenant shall
not be required to furnish Landlord with the information described in the
last sentence of Subsection 10.01B above) if such transfer shall be
effected by the sale of such stock through the "over-the-counter-market" or
through any recognized stock exchange, unless such stock shall be sold,
transferred or otherwise conveyed by persons deemed "insiders" within the
meaning of the Securities Exchange Act of 1934, as amended.
Section 10.03.
-------------
A. Except with respect to assignments or sublets described in
Section 10.02 above, if Tenant shall desire to assign this Lease or to
sublet all or any portion of the Demised Premises, Tenant shall submit to
Landlord a written request (a "First Assignment/Sublet Request") for
Landlord's consent to such assignment or subletting, which First
Assignment/Sublet Request shall contain or be accompanied by the following
information: (i) the name and address of the proposed assignee or
subtenant; (ii) a statement of all of the proposed material and economic
terms of the proposed sublet or assignment; (iii) the nature and character
of the business of the proposed assignee or subtenant and its proposed use
of the Demised Premises; and (iv) banking, financial and other credit
information with respect to the proposed assignee or subtenant reasonably
sufficient to enable Landlord to determine the financial responsibility of
the proposed assignee or subtenant. If Tenant shall have complied with the
foregoing provisions of this Subsection 10.3A, then Landlord shall not
unreasonably withhold or condition or unduly delay, consent to the proposed
assignment of this Lease or a proposed subletting of all or any portion of
the Demised Premises, provided that Tenant shall not then be in default
(after notice of such default shall have theretofore been given to Tenant)
in any of its monetary obligations hereunder or in default (after notice
and the expiration of any applicable cure period provided in this Lease)
with respect to any of Tenant's material obligations under this Lease, and
provided further that the following additional conditions (which shall be
in addition to, and not in lieu of, the other terms, conditions and
requirements set forth elsewhere in this Article 10) shall be satisfied:
(i) The proposed assignee or subtenant shall not be: (a) a
school of any kind, or an employment or placement agency or governmental or
quasi-governmental agency, or a real estate brokerage office or medical
office or executive recruitment office, or any bank or an entity that
intends to use the Demised Premises as retail establishment of any kind, or
(b) entitled, directly or indirectly, to diplomatic or sovereign immunity,
and the proposed assignee or subtenant shall be subject to service of
process in, and the jurisdiction of the courts of, the State of New York;
(ii) The subletting or assignment shall be, in the
reasonable judgment of Landlord, to a reputable person or entity, whose
occupancy will be in keeping with the dignity and character of the then use
and occupancy of the Building, and whose occupancy will not be more
hazardous than that of Tenant herein or impose any additional material
burden upon Landlord in the operation of the Building;
(iii) The proposed assignee or subtenant shall have, in the
reasonable judgment of Landlord, sufficient financial worth to perform the
obligations of Tenant under this Lease;
(iv) No space shall be or have been advertised or promoted
to the general public at a lower rental rate than that being asked by
Landlord at the time for similar space in the Building (but Tenant may
sublet the Demised Premises or list the Demised Premises for subletting
with a real estate brokerage firm at a lower rental rate than that being
asked by Landlord at the time for similar space in the Building); and
(v) The proposed assignee or subtenant (whether as named or
the intended user) shall not be (I) a tenant, subtenant, occupant or
assignee of any premises in the Building, or (II) a party who is not a
tenant, subtenant, occupant or assignee of any premises in the Building and
who dealt or negotiated with Landlord or Landlord's agent (directly or
through a broker) with respect to the leasing of any space in the Building
during the nine (9) months immediately preceding Tenant's request for
Landlord's consent, except that if Landlord shall not then have available
for lease (or shall not reasonably anticipate to become available for lease
within four (4) months following Tenant's request for Landlord's consent)
"Relatively Equivalent Space" (as hereinafter defined), then the foregoing
nine (9) month prohibition shall be deemed waived by Landlord. For purposes
hereof, the term "Relatively Equivalent Space" shall mean premises at the
Building having a rentable square footage equivalent to that of the portion
of the Demised Premises that Tenant then desires to sublet or assign, plus
or minus twenty (20%) percent of such rentable square footage.
B. Landlord shall, within thirty (30) days after Landlord's
receipt of the relevant First Assignment/Sublet Request, notify Tenant of
Landlord's intention to consent or not to consent to such proposed sublease
or assignment, subject, however, to the provisions of Section 10.04 and
Section 10.5 below. If Landlord shall fail to respond to Tenant within such
thirty (30) day period, Tenant may issue a Second Assignment/Sublet Request
in accordance with the provisions of this Section 10.3B; provided that,
when such First Assignment/Sublet Notice shall have been delivered to
Landlord, it shall have borne the following legend typed in bold, capital
letters at the top: "IF LANDLORD SHALL FAIL TO NOTIFY TENANT WHETHER
LANDLORD CONSENTS TO OR REJECTS THE PROPOSED ASSIGNMENT OR SUBLETTING OF
ALL OR A PORTION OF THE DEMISED PREMISES WITHIN THIRTY (30) DAYS FOLLOWING
LANDLORD'S RECEIPT OF THIS NOTICE, SUCH FAILURE SHALL ENTITLE TENANT TO
ISSUE A SECOND ASSIGNMENT/SUBLET REQUEST, AND IF LANDLORD SHALL NOT CONSENT
TO OR REJECT THE PROPOSED ASSIGNMENT OR SUBLETTING WITHIN FIVE (5) BUSINESS
DAYS OF RECEIPT OF SUCH SECOND ASSIGNMENT/SUBLET REQUEST, LANDLORD SHALL BE
DEEMED TO HAVE CONSENTED TO SUCH PROPOSED ASSIGNMENT OR SUBLETTING IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 10.03B OF THE LEASE." If Landlord
shall fail to notify Tenant of Landlord's intention to consent or not to
consent to such proposed assignment or subletting within five (5) Business
Days after Landlord's receipt of a separate written notice (a "Second
Assignment/Sublet Request") delivered by Tenant of the existence of such
failure, then Landlord shall be deemed to have consented to such proposed
assignment or subletting; provided that the Second Assignment/Sublet
Request shall specify Landlord's failure to respond to the First
Assignment/Sublet Request and shall bear the following legend typed in
bold, capital letters at the top: "IF LANDLORD SHALL FAIL TO NOTIFY TENANT
THAT LANDLORD HAS CONSENTED OR NOT CONSENTED TO THE PROPOSED ASSIGNMENT OR
SUBLETTING WITHIN FIVE (5) BUSINESS DAYS FOLLOWING LANDLORD'S RECEIPT OF
THIS NOTICE, LANDLORD SHALL BE DEEMED TO HAVE CONSENTED TO SUCH PROPOSED
ASSIGNMENT OR SUBLETTING IN ACCORDANCE WITH THE PROVISIONS OF SECTION
10.03B OF THE LEASE." If Landlord shall consent (or shall be deemed to have
consented) to the proposed assignment or sublet, then contemporaneously
with the effective date of such assignment or sublease, Tenant shall
deliver to Landlord a fully executed and acknowledged duplicate original or
photocopy of the assignment and assumption agreement or sublease agreement,
as well as a copy of any brokerage agreement entered into by Tenant in
connection with such assignment or sublease. No permitted or consented to
assignment or subletting shall be effective or valid for any purpose
whatsoever unless and until a duplicate original or photocopy of the
assignment and assumption agreement or sublease agreement shall have been
delivered to Landlord.
Section 10.04. In the event of each and every permitted assignment of
Tenant's interest under this Lease, the following provisions shall apply:
(i) The assignee shall assume and agree, in a recordable
writing delivered to Landlord on or before the effective date of such
assignment, to perform all of the terms, conditions and agreements of this
Lease on the part of Tenant to be kept, performed and observed, and to
become jointly and severally liable with the assignor (and remote
assignors, if any) for the performance thereof from and after the effective
date of such assignment.
(ii) The assignee shall deliver to Landlord a letter of
credit for the Security Deposit Amount in accordance with (and that
satisfies the requirements of) Article 33 of this Lease, which letter of
credit, upon receipt and acceptance by Landlord, shall replace the letter
of credit supplied by Tenant to Landlord pursuant to said Article 33, which
letter of credit will be promptly returned to the Issuing Bank (as
hereinafter defined) for cancellation.
(iii) The terms, covenants and conditions of this Lease may
be changed, altered or modified in any manner whatsoever by Landlord and
the assignee without the consent thereto of any remote or immediate
assignor, and no such change, alteration or modification shall release the
remote or immediate assignor from the performance and observance by such
remote and immediate assignor of any of the terms, covenants and conditions
on Tenant's part to be performed under this Lease; provided, however, that
in the case of a change, alteration or modification made after the date of
an assignment of this Lease to a person or entity not a Related Corporation
or a Successor Corporation, if and to the extent that such change,
alteration or modification increases the obligations of Tenant under this
Lease, the assignor shall not be liable with respect to such increase.
Section 10.05.
-------------
A. In the event of each and every permitted subletting of all or
any part of the Demised Premises, the following provisions shall apply:
(i) No subletting shall be for a term ending later than one
(1) day prior to the Expiration Date of this Lease.
(ii) The sublease shall provide that it is subject and
subordinate to this Lease and to all matters to which this Lease is or
shall be subordinate.
(iii) The sublease and all of the subtenant's rights
thereunder shall be expressly made subject to all of the obligations of
Tenant under this Lease, and to the further condition and restriction that
the sublease shall not be assigned, encumbered or otherwise transferred, or
the subleased premises further sublet by the subtenant in whole or in part,
or any part thereof suffered or permitted by the subtenant to be used or
occupied by others, without the prior written consent of Landlord (which
consent may be granted, withheld or conditioned in Landlord's sole and
absolute discretion) in each instance, except that Tenant's direct and
immediate subtenant of all the Demised Premises may further sublet the
Demised Premises in accordance with the consent standard set forth in
Section 10.03.
B. If Landlord shall consent to a proposed subletting of all or
any portion of the Demised Premises, to a person or entity not a Related
Corporation or Successor Corporation, then the written instrument of
consent, which shall also be executed and acknowledged by Tenant and the
subtenant, shall contain a provision substantially similar to the
following:
"The sublandlord [i.e., Tenant under this Lease] and the subtenant
hereby agree that, if the subtenant shall be in default of any obligation
of the subtenant under the sublease, which default also constitutes a
default by the sublandlord under the overlease [i.e., this Lease], then the
overlandlord [i.e., Landlord under this Lease] shall be permitted to avail
itself of all of the rights and remedies available to the sublandlord in
connection therewith. Without limiting the generality of the foregoing, the
overlandlord shall be permitted (by assignment of a cause of action or
otherwise) to institute an action or proceeding against the subtenant in
the name of the sublandlord in order to enforce the sublandlord's rights
under the sublease, and shall also be permitted to take all ancillary
actions (e.g., serve default notices and demands) in the name of the
sublandlord as the overlandlord shall reasonably determine to be necessary.
The sublandlord agrees to cooperate with the overlandlord, and to execute
such documents as shall be reasonably necessary, in connection with the
implementation of the foregoing rights of the overlandlord. The sublandlord
and the subtenant expressly acknowledge and agree that the exercise by the
overlandlord of any of the foregoing rights and remedies: (i) shall not
constitute an election of remedies, (ii) shall not in any way impair the
overlandlord's entitlement to pursue other rights and remedies directly
against the sublandlord, and (iii) shall not establish any privity of
relationship between the overlandlord and the subtenant, or in any way
create a landlord/tenant relationship between the overlandlord and the
subtenant."
Section 10.06.
-------------
A. If Landlord shall consent to any assignment of this Lease or
to any sublease of all or any part of the Demised Premises (other than any
assignment or subletting permitted pursuant to Section 10.02 above), Tenant
shall, in consideration therefor, pay to Landlord, as additional rent
hereunder, the following amounts (hereinafter being referred to as
"Profit"):
(i) in the case of an assignment, fifty (50%) percent of the
excess, if any, of (x) all amounts and other consideration due or payable
to Tenant and/or its designee for or by reason of such assignment
(including all amounts due or payable for the sale or rental of Tenant's
fixtures, leasehold improvements, equipment, furniture, furnishings or
other personal property, less, in case of a sale or lease, the fair market
value or rental, as the case may be, of such equipment, furniture,
furnishings or other personal property), over (y) the amount of the
following reasonable and customary out-of-pocket expenses, but only if and
to the extent actually incurred and paid by Tenant to unrelated third
parties in connection with such assignment: (a) brokerage commissions, (b)
advertising expenses, (c) the costs incurred in connection with Alterations
made by Tenant to prepare the Demised Premises for occupancy by the
assignee, or the amount of a "contribution" or other payment made to the
assignee by Tenant in lieu thereof, and (d) reasonable attorneys' fees; and
(ii) in the case of a sublease, fifty (50%) percent of the
excess, if any, of (x) the sum of (1) all rents, additional rents and other
consideration due or payable under the sublease to Tenant by the subtenant,
and (2) all other amounts and consideration due or payable to Tenant or its
designee for or by reason of such subletting (including all amounts due or
payable for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture or other personal property, less, in
case of a sale or lease, the fair market value or rental, as the case may
be, of such equipment, furniture, furnishings or other personal property),
over (y) the sum of (1) that part of the Minimum Rent and additional rent
hereunder allocable to the subleased space and accruing for the
corresponding period during the term of the sublease, and (2) the amount of
the following reasonable and customary out-of-pocket expenses, but only if
and to the extent actually incurred and paid by Tenant to unrelated third
parties in connection with such sublease: (a) brokerage commissions, (b)
advertising expenses, (c) the costs incurred in connection with Alterations
made by Tenant to prepare the Demised Premises for occupancy by the
assignee, or the amount of a "contribution" or other payment made to the
assignee by Tenant in lieu thereof, and (d) reasonable attorneys' fees.
B. Any amount(s) payable by Tenant pursuant to the provisions of
this Section 10.06 shall be paid by Tenant to Landlord as and when amounts
on account thereof are due or paid by or on behalf of any assignee(s)
and/or any sublessee(s) to Tenant or Tenant's designee, and Tenant agrees
to promptly advise Landlord thereof and furnish such information with
regard thereto as Landlord may reasonably request from time to time.
C. Tenant shall furnish to Landlord, in the January calendar
month immediately following each calendar year during any part of which any
such sublease shall be in effect, a reasonably detailed financial statement
certified as being correct by an executive financial officer (or, if Tenant
is not a corporation, a principal) of Tenant, setting forth all sums
accruing during the prior calendar year and/or realized by Tenant from such
sublease, and a computation of the Profit accruing and/or realized by
Tenant during such prior calendar year. Tenant shall remit to Landlord
together with such statement any Profit or portion thereof on account of
such calendar year not previously remitted to Landlord.
Section 10.07.
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A. Each permitted assignee or transferee of Tenant's interest in
this Lease (but not a subtenant) shall assume and be deemed to have assumed
this Lease and all of Tenant's obligations under this Lease from and after
the date of such assignment or transfer, and shall be and remain liable
jointly and severally with Tenant thereafter for the payment of all Minimum
Rent, additional rent, other charges and payments due under this Lease, and
for the full and timely performance of and compliance with all the terms,
covenants, conditions and agreements herein contained on Tenant's part to
be performed or complied with for the entire Term. No assignment, sublease
or transfer shall be effective or binding on Landlord unless and until such
assignee, subtenant or transferee of Tenant shall deliver to Landlord a
fully executed and acknowledged duplicate original of the instrument of
assignment, sublease or transfer which contains a covenant of assumption
(if not a sublease) by an assignee or transferee of all of the obligations
aforesaid, and a confirmation (including a sublease) of the covenant under
Section 10.01 prior to and preemptive of any similar rights of Tenant or
any subtenant, and shall obtain from Landlord the aforesaid written consent
prior thereto. In the event of any purported assignment, sublease or
transfer in contravention of the provisions of this Lease, Landlord may
elect to treat such purported assignee, subtenant or transferee as having
assumed this Lease jointly and severally with Tenant as and to the extent
set forth above, without in any way or to any extent binding Landlord to
consent to such purported assignment, sublease or transfer.
B. In no event shall any assignee, subtenant or other occupant of
the Demised Premises use the Demised Premises for any purpose other than
the Authorized Use.
Section 10.08. The consent by Landlord to an assignment or subletting
shall not relieve Tenant, the assignee or any subtenant from obtaining the
express consent in writing of Landlord (which consent, unless expressly
provided to the contrary in this Article 10, may be granted, withheld or
conditioned in Landlord's sole and absolute discretion) to any other or
further assignment or subletting.
Section 10.09.
-------------
A. If this Lease shall be assigned (whether or not in violation
of the provisions of this Article 10), Landlord may collect from the
assignee, and Tenant hereby authorizes and directs the assignee to pay to
Landlord, all rent (whether denominated as Minimum Rent or otherwise),
additional rent and other charges payable pursuant to the instrument of
assignment, with the net amount so collected by Landlord to be applied to
the Minimum Rent, additional rent and other charges herein provided, but no
such assignment or collection shall be deemed a waiver of the covenant by
Tenant under Section 10.01 above, nor shall the same be deemed the
acceptance by Landlord of the assignee as a tenant, or a release of Tenant
from the further performance of the covenants and agreements on the part of
Tenant to be performed as herein contained. Each and every instrument of
assignment shall contain the substance of the foregoing provision.
B. If all or any portion of the Demised Premises shall be sublet
or occupied by anyone other than Tenant (whether or not in violation of the
provisions of this Article 10), then, upon demand made by Landlord at any
time following the occurrence of an Event of Default and so long as such
Event of Default is continuing, Landlord may collect from the subtenant or
occupant, and Tenant hereby authorizes and directs such party to pay to
Landlord, all rent (whether denominated as Minimum Rent or otherwise),
additional rent and other charges payable pursuant to such instrument, with
the net amount so collected by Landlord to be applied to the Minimum Rent,
additional rent and other charges herein provided, but no such subletting,
occupancy or collection shall be deemed a waiver of the covenant by Tenant
under Section 10.01 above, nor shall the same be deemed the acceptance by
Landlord of the subtenant or occupant as a tenant, or a release of Tenant
from the further performance of the covenants and agreements on the part of
Tenant to be performed as herein contained. Each and every instrument of
sublease and/or occupancy agreement shall contain the substance of the
foregoing provision.
C. If Landlord shall for any reason or cause recover or come into
possession of the Demised Premises before the date hereinbefore fixed for
the expiration of the Term, then Landlord shall have the right (but not the
obligation) to take over any and all subleases or sublettings of the
Demised Premises or any part or parts thereof made or granted by Tenant and
to succeed to all of the rights and privileges of said subleases and
sublettings or such of them as Landlord may elect to take over and assume,
and Tenant hereby expressly assigns and transfers to Landlord such of the
subleases and sublettings as Landlord may elect to take over and assume at
the time of such recovery of possession, and Tenant shall upon request of
Landlord execute, acknowledge and deliver to Landlord such further
assignments and transfers as may be necessary and sufficient to vest in
Landlord the then existing subleases and sublettings. By its entry into a
sublease, each and every subtenant shall be deemed to have thereby agreed
that, upon said recovery of possession and if Landlord shall so elect,
Landlord may, in Landlord's sole and absolute discretion, take over the
right, title and interest of Tenant, as sublandlord, under such sublease,
in which case such subtenant shall: (i) be deemed to have waived any right
to surrender possession of the subleased space or to terminate the
sublease, (ii) be bound to Landlord for the balance of the term of such
sublease, and (iii) attorn to Landlord, as its landlord, under all of the
then executory terms, covenants and conditions of this Lease, except that
(x) rent shall be at rates of rent and additional rent under the sublease,
and (y) such subtenant shall be deemed to have expressly agreed that
Landlord shall not (1) be liable for any previous act or omission of Tenant
under such sublease, (2) be subject to any counterclaim, offset or defense,
not expressly provided in such sublease, which theretofore accrued to such
subtenant against Tenant, or (3) be bound by any previous modification of
such sublease (which was not previously consented to by Landlord), or by
any previous prepayment of more than one (1) monthly installment of rent.
The provisions of this Subsection 10.09C shall be self-operative, and no
further instrument shall be required to give effect thereto. However,
within five (5) days after Landlord shall have notified any subtenant of
said election, such subtenant shall execute, acknowledge and deliver to
Landlord such instruments as Landlord may request to evidence and confirm
such attornment and the terms thereof. Each and every sublease shall
contain the substance of this Subsection 10.09C.
Section 10.10. Without limiting the generality of the covenant set
forth in Section 10.01 above, Tenant covenants and agrees that Tenant shall
not assign Tenant's interest under this Lease or sublet the Demised
Premises (or any portion thereof) to any tenant or occupant in the
Building. Tenant covenants and agrees not to accept an assignment of any
lease or sublease from, or become a subtenant of, any tenant or occupant in
the Building.
Section 10.11. Tenant shall reimburse Landlord on demand for all
reasonable costs (including all reasonable legal fees and disbursements, as
well as the costs of making investigations as to the acceptability of a
proposed assignee or subtenant) which may be incurred by Landlord in
connection with a request by Tenant that Landlord consent to any proposed
assignment or sublease.
Section 10.12. If Landlord shall, in accordance with the applicable
provisions of this Lease, decline to consent to any proposed assignment or
sublease, Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all loss, liability, damages, cost and expense
(including reasonable attorneys' fees disbursements), resulting from any
claims that may be made against Landlord by the proposed assignee or
subtenant or by any brokers or other persons claiming a commission or
similar compensation in connection with the proposed assignment or
sublease.
Section 10.13. Except as expressly provided to the contrary in this
Article 10, in the event that Tenant shall assign Tenant's interest in, to
or under this Lease, or if Tenant shall sublet the Demised Premises or any
portion thereof, without having obtained Landlord's prior written consent
thereto or in violation of any of the other provisions contained in this
Lease, Landlord shall have the right to terminate this Lease at any time
thereafter without affording Tenant any grace period or opportunity to
cure. The acceptance by Landlord of any Minimum Rent or additional rent
paid, or of the performance of any obligation to be performed by Tenant, by
a purported assignee or subtenant shall not be deemed (i) a consent by
Landlord to the assignment or sublet to such purported assignee or
subtenant, (ii) a release by Landlord of Tenant's performance of, or
compliance with, any of the obligations to be performed, or covenants or
terms to be complied with, by Tenant pursuant to this Lease, or (iii) a
waiver of Landlord's right of termination as set forth in the immediately
preceding sentence.
Section 10.14. The listing of any name other than that of Tenant,
whether on the doors of the Demised Premises, on the Building directory,
elevators or otherwise, shall not operate to vest any right or interest in
this Lease or the Demised Premises, nor shall it be deemed to be the
consent of Landlord to any assignment or transfer of this Lease or to any
sublease of the Demised Premises or to the use or occupancy thereof by
third parties. Landlord shall not be required to permit the listing of any
name other than Tenant, and Tenant agrees that, if Landlord does consent to
any such listing, the same shall be deemed a privilege extended by Landlord
that is revocable at will by written notice to Tenant. Notwithstanding
anything to the contrary contained herein, Landlord shall list the names of
permitted subtenants of the Demised Premises, and permitted assignees of
this Lease, on the Building directory, but subject nevertheless to the
provisions of this Lease and the Building rules, regulations and
requirements governing such listings.
ARTICLE 11
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NON-LIABILITY; INDEMNIFICATION
Section 11.01. Neither Landlord nor Persons Within Landlord's Control
shall be liable for: (i) any damage to property of Tenant or of others
entrusted to employees of Landlord or to Persons Within Landlord's Control,
(ii) any loss or damage to any property of Tenant or of Persons Within
Tenant's Control by theft or otherwise, except if and to the extent caused
by the gross negligence or willful misconduct of Landlord or Persons Within
Landlord's Control (and is not otherwise subject to the provisions of
Section 8,04 above); (iii) any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity,
water, rain, snow or leaks from any part of the Building or from the pipes,
appliances or plumbing works or from the roof, street or sub-surface or
from any other place or by dampness or by any other cause of whatsoever
nature, except if and to the extent caused by the negligence or willful
misconduct of Landlord or Persons Within Landlord's Control (and is not
otherwise subject to the provisions of Section 8.04 above); (iv) any such
damage caused by other tenants or persons in the Building or caused by
operations in construction of any private, public or quasi-public work,
except if and to the extent caused by the negligence or willful misconduct
of Landlord or Persons Within Landlord's Control (and is not otherwise
subject to the provisions of Section 8.04 above); or (v) any latent defect
in the Demised Premises or in the Building (provided that the foregoing
shall not be construed so as to relieve Landlord of Landlord's obligation
to perform Landlord's Work or such Repairs as Landlord shall otherwise be
required to perform pursuant to the provisions of this Lease in a good and
workmanlike manner). In no event shall Landlord be liable to Tenant for any
consequential damages in connection with or with respect to this Lease.
Section 11.02. If at any time any windows of the Demised Premises
shall be temporarily or permanently closed, darkened or covered for any
reason whatsoever, including Landlord's own acts, Landlord shall not be
liable for any damage Tenant may sustain thereby, and Tenant shall not be
entitled to any compensation therefor nor abatement of rent, nor shall the
same release Tenant from Tenant's obligations hereunder or constitute an
eviction.
Section 11.03. Except to the extent that the waiver of subrogation and
release provisions of Section 8.04 hereof shall apply, Tenant agrees,
irrespective of whether Tenant shall solely have been negligent in
connection therewith, but only if and to the extent the same shall not be
caused solely by the negligence or willful misconduct of Landlord or
Persons Within Landlord's Control, to indemnify, protect, defend and save
harmless, Landlord and Landlord's partners, officers, directors,
contractors, agents and employees from and against any and all liability
(statutory or otherwise), claims, suits, demands, damages, judgments,
costs, fines, penalties, interest and expenses (including reasonable
counsel and other professional fees and disbursements incurred in any
action or proceeding), to which Landlord and/or any such partner, officer,
director, contractor, agent or employee may be subject or suffer arising
from, or in connection with: (i) any liability or claim for any injury to,
or death of, any person or persons, or damage to property (including any
loss of use thereof), occurring in or about the Demised Premises, or (ii)
the use and occupancy of the Demised Premises, or from any work,
installation or thing whatsoever done or omitted (other than by Landlord or
its agents or employees) in or about the Demised Premises during the Term
and during the period of time, if any, prior to the Commencement Date that
Tenant may have been given access to the Demised Premises, or (iii) any
default by Tenant in the performance of Tenant's obligations under this
Lease, or (iv) any act, omission, carelessness, negligence or misconduct of
Tenant or of Persons Within Tenant's Control. Notwithstanding the
foregoing, Tenant shall be relieved of Tenant's obligation of indemnity
herein pro tanto of the amount actually recovered by Landlord from one or
more of Landlord's insurers in connection with any such claim.
Section 11.04. Tenant shall reimburse and compensate Landlord, as
additional rent within thirty (30) days after rendition of a statement, for
all expenditures, costs, fees, expenses, judgments, penalties, damages and
fines sustained or incurred by Landlord (including reasonable counsel and
other professional fees and disbursements incurred in connection with any
action or proceeding) in connection with any matter set forth in this
Article 11, or breach of any warranty or representation by Tenant made in
this Lease or the default by Tenant under this Lease. If, in any action or
proceeding naming both Landlord and Tenant, liability arising out of the
negligence of Tenant is established, Tenant shall (i) indemnify Landlord in
accordance with the provisions of this Article 11 and (ii) waive any right
of contribution against Landlord. Reference in this Article 11 to Landlord
shall for all purposes be deemed to include the lessor of any Underlying
Lease and each Mortgagee.
Section 11.05. A. Subject to the provisions of Subsection 11.05B
below, Tenant agrees that Tenant's sole remedies in any instances where
Tenant disputes Landlord's reasonableness in exercising judgment or
withholding its consent or approval pursuant to a specific provision of
this Lease shall be those in the nature of an injunction, declaratory
judgment or specific performance, the rights to monetary damages or other
remedies being hereby specifically and irrevocably waived by Tenant.
Without limiting the generality of the foregoing, and unless expressly
provided to the contrary in this Lease, Tenant agrees that, in any
situation in which Landlord's consent or approval is required pursuant to
this Lease, the same may be granted or withheld in Landlord's sole and
absolute discretion, and/or be made subject to such conditions as Landlord,
in Landlord's sole and absolute discretion, may deem appropriate.
B. In any instance where this Lease expressly provides that,
in connection with a proposed Alteration, assignment or subletting,
Landlord's consent or approval is required and may not unreasonably be
withheld or delayed, if Tenant shall dispute the reasonableness of
Landlord's refusal to grant such consent or approval or the timeliness of
Landlord's response, Tenant shall have the right to submit said dispute to
binding arbitration under the Expedited Procedures provisions (Rules 53
through 57 in the November 1, 1993 edition) of the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). In cases where
Tenant shall elect to utilize such arbitration: (i) the parties will have
no right to object if the arbitrator so appointed was on the list submitted
by the AAA and was not objected to in accordance with Rule 54, (ii) the
first hearing shall be held within five (5) Business Days after the
appointment of the arbitrator, which appointment shall occur within five
(5) Business Days after Tenant elects to submit to arbitration such
dispute, (iii) if the arbitrator shall find that Landlord acted
unreasonably in withholding a consent or approval, such consent or approval
shall be deemed granted, (iv) the losing party in such arbitration shall
pay the arbitration costs charged by AAA and/or the arbitrator and any
reasonable legal fees and disbursements and other reasonable professional
fees incurred by the successful party in connection with such arbitration,
and (v) the decision of such arbitrator may be entered in a court of
competent jurisdiction.
Section 11.06.
-------------
A. Tenant acknowledges receipt of advice from Landlord to the
effect that the Demised Premises and other portions of the Building contain
(or may contain) asbestos. Tenant expressly agrees that except as set forth
below: (i) Landlord shall have no liability whatsoever to Tenant, or to any
person or entity claiming by, through or under Tenant, on account of, or in
connection with, the presence of asbestos in the Demised Premises or the
Building, and (ii) Tenant's obligation to keep, observe and perform all of
the terms, provisions, covenants and conditions on the part of Tenant to be
kept, observed and performed pursuant to this Lease shall not in any way be
diminished or contested on account of the presence of such asbestos.
B. Notwithstanding anything to the contrary contained in the
foregoing Subsection 11.06A, Landlord represents that Landlord has removed
all asbestos-containing material (as such term is defined by applicable
Legal Requirements), located in the Demised Premises, except from the
Building core and wet columns, removal of which Landlord represents is not
required pursuant to applicable Legal Requirements, in compliance with all
applicable Legal Requirements. With respect to any asbestos-containing
material which shall remain in the Demised Premises, Landlord represents
that, subject to the provisions of the last three sentences of this
Subsection 11.06B, the Demised Premises and such asbestos-containing
material shall be in compliance with all applicable Legal Requirements. If
any Legal Requirements becoming effective following the date hereof shall
require the removal, containment, treatment or encapsulation of any
asbestos-containing material which may exist in the Demised Premises,
Landlord shall promptly cause the removal, containment, treatment or
encapsulation of any such asbestos-containing material, at Landlord's own
cost and expense and in the same manner as Landlord is obligated to make
Repairs, it being understood and agreed that Landlord's obligation to so
treat such asbestos-containing materials is subject to the removal by
Tenant, at Landlord's cost and expense, of such installations of Tenant as
are necessary to remove so that Landlord shall have adequate access for
such treatment of asbestos-containing materials. Landlord shall have no
obligation for the restoration or repair of such Tenant's installations.
Notwithstanding anything to the contrary contained in this Subsection
11.06B, if the removal, containment, treatment or encapsulation of such
asbestos or asbestos-containing material shall be necessitated by the
negligence or willful misconduct of Tenant or any Persons Within Tenant's
Control, Landlord shall cause such asbestos-containing material to be
removed, contained, treated or encapsulated, to the extent required by
Legal Requirements, solely at Tenant's cost and expense. In no event shall
Tenant be responsible for remediation of any asbestos- containing material
outside the Demised Premises, unless such asbestos-containing material was
introduced by Tenant or unless Tenant necessitates the need for such
remediation.
ARTICLE 12
----------
CONDEMNATION
Section 12.01. If the whole of the Demised Premises shall be lawfully
condemned or taken in any manner for any public or quasi-public use, this
Lease and the term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title. If only a part of the Demised
Premises shall be so condemned or taken, then, effective as of the date of
vesting of title, the Minimum Rent and additional rent hereunder shall be
abated in an amount thereof apportioned according to the area of the
Demised Premises so condemned or taken. If only a part of the Building
(other than a de minimis portion of the Building) shall be so condemned or
taken (whether or not the Demised Premises be affected), then Landlord may,
at Landlord's option, terminate this Lease and the term and estate hereby
granted as of the date of such vesting of title by notifying Tenant in
writing of such termination within sixty (60) days following the date on
which Landlord shall have received notice of vesting of title. If fifteen
(15%) percent or more of the Demised Premises shall be so condemned or
taken and any portion of the Building shall be so condemned or taken, which
condemnation or taking of the Building shall have a material adverse effect
on Tenant's means of access to the Demised Premises or entrance to the
Building, then Tenant may, at Tenant's option, by delivery of notice in
writing to Landlord within sixty (60) days following the date on which
Tenant shall have received notice of vesting of title, terminate this Lease
and the term and estate hereby granted as of the date set forth in Tenant's
notice and the Minimum Rent and additional rent shall be prorated and
adjusted as of the date of vesting of title. If neither Landlord nor Tenant
elects to terminate this Lease as aforesaid, this Lease shall be and remain
unaffected by such condemnation or taking, except that the Minimum Rent and
additional rent shall be abated to the extent, if any, hereinbefore
provided in this Article 12. If only a part of the Demised Premises shall
be so condemned or taken and this Lease and the term and estate hereby
granted are not terminated as hereinbefore provided, Landlord will, with
reasonable diligence and at its expense, restore the remaining portion of
the Demised Premises as nearly as practicable to the same condition as it
was in prior to such condemnation or taking, provided that such restoration
shall not exceed the scope of the work done in originally constructing the
Building and that the cost thereof shall not exceed the net proceeds of the
award received by Landlord for the value of the portion of the Demised
Premises so taken, and Tenant shall be entitled to receive no part of such
award.
Section 12.02. In the event of any condemnation or taking hereinbefore
mentioned of all or a part of the Building or the Demised Premises,
Landlord shall be entitled to receive the entire award in the condemnation
proceeding, including any award made for the value of the estate vested by
this Lease in Tenant, and Tenant hereby expressly assigns to Landlord any
and all right, title and interest of Tenant now or hereafter arising in or
to any such award or any part thereof, and Tenant shall be entitled to
receive no part of such award. In any condemnation proceeding, Tenant may
submit a separate claim against the condemning authority for the value of
Tenant's trade fixtures, the unamortized portion of Tenant's Initial Work,
and the cost of removal or relocation, if such separate claims are
allowable as such and do not reduce the award otherwise payable to
Landlord.
Section 12.03. If all or any portion of the Demised Premises shall be
taken by the exercise of the right of eminent domain for occupancy for a
limited period, this Lease shall continue in full force and effect
provided, however, effective as of the date of vesting of title, Landlord
shall be entitled to receive, for itself, the entire award or payment made
for such use during such taking and Tenant hereby expressly assigns to
Landlord any and all right, title, and interest of Tenant now or hereafter
arising in or to any such award or payment. The Minimum Rent and Recurring
Additional Rent hereunder shall be abated in an amount thereof apportioned
according to the area of the Demised Premises so taken for the period of
such taking. If such taking is for a period not extending beyond the Term
of this Lease, and if such taking results in changes or Alterations in the
Demised Premises which would necessitate an expenditure to restore the
Demised Premises to its former condition, then Landlord, at the termination
of such taking shall, at its expense, and to the extent any award or awards
shall be sufficient for the purpose, restore the Demised Premises to its
former condition.
ARTICLE 13
----------
ACCESS; BUILDING NAME
Section 13.01. Landlord reserves the right at any time and from time
to time (without thereby creating an actual or constructive eviction or
incurring any liability to Tenant therefor) to place such structures and to
make such relocations, changes, Alterations, additions, improvements,
Repairs and replacements on the Land and in or to the Building (including
the Demised Premises) and the Building Systems, and the operation of the
Building Systems, as well as in or to the street entrances, subway
entrances, lobbies, halls, plazas, washrooms, tunnels, elevators, stairways
and other parts thereof, and to erect, maintain and use pipes, ducts and
conduits in and through the Demised Premises, all as Landlord may
reasonably in its good faith judgment deem necessary or desirable;
provided, however, that: (i)Landlord shall use commercially reasonable
efforts (except that Landlord shall have no obligation to employ
contractors or labor at overtime or premium rates or to incur any other
overtime costs or expenses in connection therewith) to minimize
interference with Tenant's use and occupancy of the Demised Premises for
the Authorized Use or access thereto arising from the making of such
Repairs, Alterations and improvements (ii) any such changes, Alterations,
Repairs, and improvements shall not materially increase the obligations of
Tenant under this Lease and (iii) the installation and location of any
pipes, ducts, or conduits installed in or through the Demised Premises
shall not reduce the usable area of the Demised Premises by more than a de
minimis amount. Landlord shall also have the right to install solar control
window film on, or otherwise alter for energy savings purpose, any windows
of the Demised Premises. Nothing contained in this Article 13 shall be
deemed to relieve Tenant of any duty, obligation or liability of Tenant
with respect to making any repair, replacement or improvement or complying
with any Legal Requirements as elsewhere in this Lease provided.
Section 13.02. Except as provided in Section 1.02 above, neither this
Lease nor any use by Tenant shall give Tenant any right or easement in or
to the use of any door or hallways, or any passage or any tunnel or any
concourse or arcade or plaza or to any connection of the Building with any
subway, railroad or any other building or to any public conveniences, and
the use of such doors, halls, passages, tunnels, concourses, arcades,
plazas, connections and conveniences may without notice to Tenant be
regulated or discontinued at any time and from time to time by Landlord
without Landlord incurring any liability to Tenant therefor and without
affecting the obligations of Tenant under this Lease.
Section 13.03. Landlord, Overlandlord and any Mortgagee, and their
representatives, may enter the Demised Premises at all reasonable hours and
without Tenant being present, upon reasonable advance notice (which notice
may be given orally to any managerial level employee of Tenant) and Tenant
or a representative of Tenant may elect to be present and to accompany
Landlord at the time of such entry (it being agreed that if Tenant shall
not so elect, Landlord may enter the Demised Premises without Tenant being
present) to Tenant (except in emergency, in which case entry may be made at
any time and without notice), for the purpose of inspection or of making
Repairs, Alterations, additions, restorations, replacements or improvements
in or to the Demised Premises or the Building or Building Systems or of
complying with Legal Requirements or the requirements of any Insurance
Board, or of exercising any right reserved to Landlord by this Lease
(including the right, during the progress of any Repairs or Alterations or
while performing work or furnishing materials in connection with compliance
with all such Legal Requirements or requirements of any Insurance Board, to
keep and store within the Demised Premises all necessary materials, tools
and equipment), provided that the foregoing shall not be deemed to impose
any obligation on Landlord or Overlandlord or Mortgagee to make any Repairs
or Alterations.
Section 13.04. Landlord may, at reasonable times and without Tenant
being present, upon reasonable advance notice (which notice may be given
orally to any management level employee of Tenant), and Tenant may elect to
be present and to accompany Landlord at the time of such entry (it being
agreed that if Tenant shall not so elect, Landlord may enter the Demised
Premises without Tenant being present) show the Demised Premises to any
prospective purchaser, lessee, mortgagee, or assignee of the Building
and/or the Land, or of Landlord's interest therein, and their
representatives. During the twelve (12) month period preceding the
Expiration Date, Landlord may similarly show the Demised Premises or any
part thereof to any person contemplating the leasing of all or a portion of
the same.
Section 13.05. Without incurring any liability to Tenant, Landlord may
permit access to the Demised Premises and open the same, whether or not
Tenant shall be present, upon demand of any receiver, trustee, assignee for
the benefit of creditors, sheriff, marshal or court officer entitled to, or
purporting to be entitled to, such access for the purpose of taking
possession of, or removing, Tenant's property or for any other lawful
purpose (but by this provision any action by Landlord hereunder shall not
be deemed a recognition by Landlord that the person or official permitted
to such access has any right to such access or interest in or to this
Lease, or in or to the Demised Premises), or upon demand of any
representative of the fire, police, building, sanitation or other
department of the city, state or federal governments.
Section 13.06. Landlord shall have the absolute right at any time, and
from time to time, to name and change the name of the Building and to
change the designated address of the Building. The Building may be named
after any person, or otherwise, whether or not such name shall be, or shall
resemble, the name of a tenant of space in the Building.
Section 13.07. Any reservation of a right by Landlord to enter upon
the Demised Premises and to make or perform any Repairs, Alterations or
other work in, to or about the Demised Premises which, in the first
instance, is the obligation of Tenant pursuant to this Lease, shall not be
deemed to: (i) impose any obligation on Landlord to do so, (ii) render
Landlord liable (to Tenant or any third party) for the failure to do so, or
(iii) relieve Tenant from any obligation to indemnify Landlord as otherwise
provided elsewhere in this Lease.
Section 13.08. Subject to the provisions of this Lease and to
circumstances beyond the control of Landlord, Tenant shall have access to
the Demised Premises on a 24-hour per day, 7-day per week, basis.
ARTICLE 14
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BANKRUPTCY
Section 14.01. This Lease and the term and estate hereby granted shall
be subject to the conditional limitation that, if any one or more of the
following events shall occur: (i) Tenant shall (a) have applied for or
consented to the appointment of a receiver, trustee, liquidator, or other
custodian of Tenant or any of its properties or assets, (b) have made a
general assignment for the benefit of creditors, (c) have commenced a
voluntary case for relief as a debtor under the United States Bankruptcy
Code or filed a petition to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debts, dissolution or
liquidation law or statute or an answer admitting the material allegations
of a petition filed against it in any proceeding under any such law, or (d)
be adjudicated a bankrupt or insolvent, or (ii) without the acquiescence or
consent of Tenant, an order, judgment or decree shall have been entered by
any court of competent jurisdiction (a) approving as properly filed a
petition seeking relief under the United States Bankruptcy Code or any
bankruptcy, reorganization, insolvency, readjustment of debts, dissolution
or liquidation law or statute with respect to Tenant or all or a
substantial part of its properties or assets, or (b) appointing a receiver,
trustee, liquidator or other custodian of all or a substantial part of its
properties or assets, and such order, judgment or decree shall have
continued unstayed and in effect for any period of one hundred twenty (120)
days or more, then this Lease may be canceled and terminated by Landlord by
the sending of a written notice to Tenant within a reasonable time after
Landlord shall be notified of the happening of any of the aforedescribed
events. Neither Tenant, nor any person claiming through or under Tenant or
by reason of any statute or order of court, shall thereafter be entitled to
possession of the Demised Premises, but shall forthwith quit and surrender
the Demised Premises. If this Lease shall have been theretofore assigned in
accordance with its terms, the provisions of this Article shall be
applicable only to the party then owning Tenant's interest in this Lease.
Section 14.02. Without limiting any of the foregoing provisions of
this Article, if, pursuant to the United States Bankruptcy Code, Tenant
shall be permitted to assign this Lease notwithstanding the restrictions
contained in this Lease, Tenant agrees that adequate assurance of future
performance by an assignee expressly permitted under such Code shall be
deemed to mean (a) the deposit of cash security in an amount equal to the
sum of three (3) monthly installments of the Minimum Rent plus additional
rent under Article 19 of this Lease for the calendar year preceding the
year in which such assignment is intended to become effective, which
deposit shall be held by Landlord for the balance of the Term, without
interest, as security for the full performance of all of the obligations
under this Lease on the part of Tenant to be performed, and (b) evidence by
financial statement prepared and certified by a certified public accountant
that the assignee has a current net worth, after including the assignment
and excluding the value of the leasehold, sufficient to meet all of the
remaining rental obligations under this Lease.
ARTICLE 15
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DEFAULTS, REMEDIES, DAMAGES
Section 15.01. This Lease and the term and estate hereby granted shall
be subject to the conditional limitation that, if any one or more of the
following events (collectively, "Events of Default") shall occur:
(a) Tenant shall fail to pay to Landlord the full amount of
any installment of Minimum Rent or any Recurring Additional Rent on the
date upon which the same shall first become due, and such default shall
continue for five (5) days following delivery of a written notice of such
default to Tenant; or
(b) Tenant shall fail to pay to Landlord the full amount of
any additional rent (other than Recurring Additional Rent), or any other
charge payable hereunder by Tenant to Landlord, on the date upon which the
same first becomes due, and such default shall continue for ten (10) days
following delivery of a written notice of such default to Tenant; or
(c) Tenant shall do anything or permit anything to be done,
whether by action or inaction, in breach of any covenant, agreement, term,
provision or condition of this Lease, or any Exhibit annexed hereto, on the
part of Tenant to be kept, observed or performed (other than a breach of
the character referred to in clause s15.01(a) and (b) above), and such
breach shall continue and shall not be fully remedied by Tenant within
thirty (30) days after Landlord shall have given to Tenant a written notice
specifying the same (except in connection with a breach which cannot be
remedied or cured within said thirty (30) day period, in which event the
time of Tenant within which to cure such breach shall be extended for such
time as shall be necessary to cure the same, but only if Tenant, within
such thirty (30) day period, shall promptly commence and thereafter proceed
diligently and continuously to cure such breach, and provided further that
such period of time shall not be so extended as to jeopardize the interest
of Landlord in the Land and/or the Building or so as to subject Landlord to
any liability, civil or criminal); or
(d) Any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance of
the Term of this Lease would, by operation of law or otherwise, devolve
upon or pass to any person, firm, association or corporation other than
Tenant, except as may be expressly authorized herein; or
(e) Tenant shall permanently desert or abandon the Demised
Premises, or the same shall become permanently vacant and Tenant shall not
pay the rent due hereunder (whether or not the keys be surrendered, and
whether or not improvements, personal property or trade fixtures remain in
the Demised Premises), or Tenant shall fail to take possession or move into
the Demised Premises within one hundred twenty (120) days after the
Commencement Date;
then, upon the occurrence of any of said events, Landlord may at any time
thereafter give to Tenant a notice of termination of this Lease setting
forth a termination date ten (10) days from the date of the giving of such
notice, and, upon the giving of such notice, this Lease and the term and
estate hereby granted (whether or not the Term shall theretofore have
commenced) shall expire and terminate upon the expiration of said ten (10)
days with the same effect as if that day were the date hereinbefore set for
the expiration of the Term of this Lease, but Tenant shall remain liable
for damages as provided in Section 15.03 below.
Section 15.02.
-------------
A. Subject to the provisions of Subsection 15.02F below, if an
Event of Default shall have occurred, Landlord and/or Landlord's agents and
employees, may, without notice to Tenant, immediately or at any time
thereafter re-enter into or upon the Demised Premises or any part thereof,
either by summary dispossess proceedings or by any suitable action or
proceeding at law, or by force or otherwise, to the extent legally
permitted, without being liable to indictment, prosecution or damages
therefor, and may repossess the same, and may remove any persons or
property therefrom, to the end that Landlord may have, hold and enjoy the
Demised Premises again as and of its first estate and interest therein. The
words "reenter" "re-entry" and "re-entered" as used in this Lease are not
restricted to their technical legal meanings. In the event of any
termination of this Lease under the provisions of Articles 14 or 15, or in
the event that Landlord shall re-enter the Demised Premises under the
provisions of this Article 15, or in the event of the termination of this
Lease (or of re-entry) by or under any summary dispossess or other
proceeding or action or any provision of law, Tenant shall thereupon pay to
Landlord the Minimum Rent, additional rent and any other charges payable
hereunder by Tenant to Landlord up to the time of such termination of this
Lease, or of such recovery of possession of the Demised Premises by
Landlord, as the case may be, plus the expenses incurred or paid by
Landlord in terminating this Lease or of re-entering the Demised Premises
and securing possession thereof, including reasonable attorneys' fees and
costs of removal and storage of Tenant's property, and Tenant shall also
pay to Landlord damages as provided in Section 15.03 below.
B. In the event of the re-entry into the Demised Premises by
Landlord under the provisions of this Section 15.02, and if this Lease
shall not be terminated (subject to the provisions of Subsection 15.02F
below), Landlord may (but shall have absolutely no obligation to do so),
not in Landlord's own name, but as agent for Tenant, relet the whole or any
part of the Demised Premises for any period equal to or greater or less
than the remainder of the original term of this Lease, for any sum which
Landlord may deem suitable, including rent concessions, and for any use and
purpose which Landlord may deem appropriate. Such reletting may include any
improvements, personalty and trade fixtures remaining in the Demised
Premises.
C. In the event of a breach or threatened breach on the part of
Tenant with respect to any of the covenants, agreements, terms, provisions
or conditions on the part of or on behalf of Tenant to be kept, observed or
performed, Landlord shall also have the right to obtain injunctive relief.
D. In the event of (i) the termination of this Lease under the
provisions of Articles 14 or 15, or (ii) the re-entry of the Demised
Premises by Landlord under the provisions of this Section 15.02, or (iii)
the termination of this Lease (or re-entry) by or under any summary
dispossess or other proceeding or action or any provision of law by reason
of default hereunder on the part of Tenant, Landlord shall be entitled to
retain all monies, if any, paid by Tenant to Landlord, whether as advance
rent, security deposit or otherwise, but such monies shall be credited by
Landlord against any Minimum Rent, additional rent or any other charge due
from Tenant at the time of such termination or re-entry or, at Landlord's
option, against any damages payable by Tenant under Section 15.03 or
pursuant to law.
E. The specified remedies to which Landlord may resort under this
Lease are cumulative and concurrent, and are not intended to be exclusive
of each other or of any other remedies or means of redress to which
Landlord may lawfully be entitled at any time, and Landlord may invoke any
remedy allowed under this Lease or at law or in equity as if specific
remedies were not herein provided for, and the exercise by Landlord of any
one or more of the remedies allowed under this Lease or in law or in equity
shall not preclude the simultaneous or later exercise by the Landlord of
any or all other remedies allowed under this Lease or in law or in equity.
F. Notwithstanding anything to the contrary contained in this
Section 15.02, Landlord shall not re-enter the Demised Premises by reason
of Tenant's default under this Lease, unless: (i) Landlord shall have
served a notice of termination pursuant to Section 15.01 above, or (ii)
this Lease shall have been otherwise terminated pursuant to Article 14
above or this Article 15, or (iii) Landlord shall have prevailed in any
summary proceeding with respect to the Demised Premises and shall have
obtained a warrant of eviction against Tenant.
Section 15.03.
-------------
A. In the event of any termination of this Lease under the
provisions hereof or under any summary dispossess or other proceeding or
action or any provision of law, or in the event that Landlord shall
re-enter the Demised Premises under the provisions of this Lease, Tenant
shall pay to Landlord as damages, at the election of Landlord, either:
(i) a sum which at the time of such termination of this
Lease or at the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of (a) the aggregate of
the installments of Minimum Rent and the additional rent (if any) which
would have been payable hereunder by Tenant, had this Lease not so
terminated, for the period commencing with such earlier termination of this
Lease or the date of any such re-entry, as the case may be, and ending with
the date hereinbefore set for the expiration of the full term hereby
granted pursuant to Articles 1 and 2, over (b) the aggregate rental value
of the Demised Premises for the same period (the amounts of each of clauses
(a) and (b) being first discounted to present value at an annual rate equal
to the Prime Rate (as hereinafter defined); or
(ii) sums equal to the aggregate of the installments of
Minimum Rent and additional rent (if any) which would have been payable by
Tenant had this Lease not so terminated, or had Landlord not so re-entered
the Demised Premises, payable upon the due dates therefor specified herein
following such termination or such re-entry and until the date herein
before set for the expiration of the full term hereby granted; provided,
however, that if Landlord shall relet the Demised Premises during said
period, Landlord shall credit Tenant with the net rents received by
Landlord from such reletting, such net rents to be determined by first
deducting from the gross rents as and when received by Landlord from such
reletting the customary out-of-pocket expenses incurred or paid by Landlord
in terminating this Lease and of re-entering the Demised Premises and of
securing possession thereof, including reasonable attorneys' fees and costs
of removal and storage of Tenant's property, as well as the customary
out-of-pocket expenses of reletting, including repairing, restoring and
improving the Demised Premises for new tenants, brokers' commissions,
advertising costs, reasonable attorneys' fees and disbursements, and all
other expenses chargeable against the Demised Premises and the rental
therefrom in connection with such reletting, it being understood that such
reletting may be for a period equal to or shorter or longer than the
remaining term of this Lease; and provided further, that (a) in no event
shall Tenant be entitled to receive any excess of such net rents over the
sums payable by Tenant to Landlord hereunder, (b) in no event shall Tenant
be entitled in any suit for the collection of damages pursuant to this
Subdivision (ii) to a credit in respect of any net rents from a reletting
except to the extent that such net rents are actually received by Landlord
prior to the commencement of such suit, and (c) if the Demised Premises or
any part thereof should be relet in combination with other space, then
proper apportionment on a square foot area basis shall be made of the rent
received from such reletting and of the expenses of reletting, or if relet
for a period longer than the remaining term of this lease, the expenses of
reletting shall be apportioned based on the respective periods.
B. For the purposes of Subdivision A(i) of this Section 15.03,
the amount of additional rent which would have been payable by Tenant under
Article 19 for each year, as therein provided, ending after such
termination of this Lease or such re-entry, shall be deemed to be an amount
equal to the amount of such additional rent payable by Tenant for the
calendar year and Tax Year ending immediately preceding such termination of
this Lease or such re-entry. Suit or suits for the recovery of such
damages, or any installments thereof, may be brought by Landlord from time
to time at Landlord's election, and nothing contained herein shall be
deemed to require Landlord to postpone suit until the date when the term of
this Lease would have expired if it had not been terminated under the
provisions of Articles 14 or 15, or under any provision of law, or had
Landlord not re-entered the Demised Premises.
Section 15.04. Nothing contained in this Article 15 shall be construed
as limiting or precluding the recovery by Landlord against Tenant of any
payments or damages to which, in addition to the damages particularly
provided above, Landlord may lawfully be entitled by reason of any default
hereunder on the part of Tenant. The failure or refusal of Landlord to
relet the Demised Premises or any part or parts thereof, or the failure of
Landlord to collect the rent thereof under such reletting, shall not
release or affect Tenant's liability for damages.
Section 15.05. Tenant, for Tenant, and on behalf of any and all
persons claiming through or under Tenant, including creditors of all kinds,
does hereby waive and surrender all right and privilege which they or any
of them might have under or by reason of any present or future law to
redeem the Demised Premises, or to have a continuance of this Lease for the
term hereby demised, after Tenant shall be dispossessed or ejected
therefrom by process of law or under the terms of this Lease or after the
expiration or termination of this Lease as herein provided or pursuant to
law. Tenant also waives the provisions of any law relating to notice and/or
delay in levy of execution in case of an eviction or dispossess of a tenant
for non-payment of rent, and of any other law of like import now or
hereafter in effect. In the event that Landlord shall commence any summary
proceeding for non-payment of rent or for holding over after the expiration
or sooner termination of this Lease, Tenant shall not, and hereby expressly
waives any right to, interpose any counterclaim of whatever nature or
description in any such proceeding, unless the failure of Tenant to
interpose such counterclaim would operate as a forfeiture of Tenant's right
to make such a claim separately.
Section 15.06. The provisions of this Article 15 shall survive the
expiration or sooner termination of this Lease.
ARTICLE 16
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CURING TENANT'S DEFAULTS; REIMBURSEMENT
Section 16.01. If Tenant shall default in any of its monetary
obligations hereunder or default (after notice and the expiration of any
applicable cure period provided in this Lease) in the observance or
performance of any material term, covenant, provision or condition on
Tenant's part to be observed or performed under or by virtue of any of the
terms or provisions in this Lease, then, unless otherwise provided
elsewhere in this Lease, Landlord may immediately or at any time thereafter
and without notice perform the obligation of Tenant thereunder, and if
Landlord, in connection therewith or in connection with any default by
Tenant (after notice and the expiration of any applicable cure period
provided in this Lease) in the covenant to pay Minimum Rent or additional
rent hereunder, shall make any expenditures or incur any obligations for
payment of money, including court costs and reasonable attorneys' fees, in
instituting, prosecuting or defending any action or proceeding, then such
fees, costs and expenses so paid or obligations incurred shall be
additional rent to be paid by Tenant to Landlord, upon demand, with
interest thereon at an annual rate (the "Interest Rate") equal to the
lesser of: (a) the then prevailing prime rate (which, for the purposes
hereof, includes any equivalent or successor interest rate, however
denominated) of interest for unsecured ninety-day loans by Citibank, N.A.
(or The Chase Manhattan Bank, N.A., if Citibank, N.A. shall not then have
an established prime rate; or the prime rate of any major banking
institution doing business in New York City, as selected by Landlord, if
none of the aforementioned banks shall be in existence or have an
established prime rate) (with the relevant interest rate being the "Prime
Rate") plus two (2) percentage points, or (b) the maximum rate allowed by
law. Any interest payable by Tenant pursuant to this Lease at the Interest
Rate shall be calculated from the day such expenditure is made or
obligation is incurred until the date when such payment is finally and
completely paid by Tenant to Landlord.
Section 16.02. Bills for any property, material, labor or services
provided, furnished or rendered, or caused to be provided, furnished or
rendered, by Landlord to Tenant pursuant to the terms of this Lease, may be
sent by Landlord to Tenant monthly (or immediately, at Landlord's option),
and shall be due and payable by Tenant as additional rent within thirty
(30) days after the same shall be sent to Tenant by Landlord. If Landlord
shall commence a summary proceeding against Tenant for non-payment of rent,
Tenant shall reimburse Landlord as additional rent for Landlord's
reasonable attorneys' fees and expenses, both if judgment is awarded for
Landlord, or if Tenant makes the payment subsequent to service of process
but prior to entry of judgment. If Tenant or any subtenant of Tenant shall
request Landlord's consent to any matter that requires Landlord's consent
under this Lease and if Landlord (in Landlord's sole discretion) shall
refer the matter to Landlord's attorneys or other professionals or
consultants, then, whether or not such consent shall be granted, Tenant
shall reimburse Landlord for the reasonable fees and disbursements incurred
by Landlord in connection therewith as additional rent within thirty (30)
days after a bill therefor shall have been rendered.
Section 16.03. If the Term shall have expired or been terminated after
or on the date that Landlord shall have made any of the expenditures, or
incurred any of the obligations, set forth in this Article 16, then all
such amounts and any interest thereon, as set forth in Section 16.01 above,
shall be recoverable by Landlord as damages. The provisions of this Article
16 shall survive the expiration or sooner termination of this Lease.
ARTICLE 17
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QUIET ENJOYMENT
Section 17.01. Landlord covenants that, if and for so long as Tenant
shall pay all of the Minimum Rent and additional rent reserved hereunder
and shall observe and perform all of the terms, agreements, covenants,
provisions and conditions of this Lease on Tenant's part to be observed and
performed, Tenant may peaceably and quietly enjoy the Demised Premises,
subject nevertheless to the terms and conditions of this Lease, and
provided, however, that no eviction of Tenant by reason of paramount title,
by reason of the foreclosure of any Mortgage now or hereafter affecting the
Demised Premises or by reason of any termination of any Underlying Lease to
which this Lease is subject and subordinate, whether such termination is
effected by operation of law, by agreement or otherwise, shall be construed
as a breach of this covenant nor shall any action by reason thereof be
brought against Landlord. This covenant shall be construed as a covenant
running with the Land, and is not, nor shall it be construed as, a personal
covenant of Landlord, except to the extent of Landlord's interest in this
Lease and only for so long as such interest shall continue; provided,
however, that except as otherwise provided in this Lease, nothing contained
in this Section 17.01 shall be deemed to exculpate Landlord for or with
respect to acts of Landlord which occurred during the period of time that
said Landlord held the interest of the Landlord under this Lease.
Accordingly, this covenant shall bind and be enforceable against Landlord
or any successor to Landlord's interest, subject to the terms hereof, only
for so long as Landlord or any successor to Landlord's interest,
respectively, shall be in possession and shall be collecting rent from
Tenant, but not thereafter.
ARTICLE 18
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BUILDING SERVICES
Section 18.01.
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A. So long as this Lease shall remain in full force and effect,
Landlord shall provide the following services:
(i) elevator service in the elevator bank servicing the
Demised Premises on Business Days, during usual business hours (i.e., 8
A.M. to 6 P.M.), and, subject to the provisions of Section 18.04 below,
have at least one elevator on call at all other times. Landlord shall also
provide freight elevator service on Business Days during business hours in
common with other tenants and occupants of the Building on a first-come
first-served basis for the making of deliveries in the ordinary course of
Tenant's business to and from the Demised Premises. Tenant agrees that
Landlord may, at Landlord's election, install elevators with or without
operators and may change the same from time to time;
(ii) heat to the Demised Premises when and as required by
law, on Business Days from 8 A.M. to 6 P.M.;
(iii) hot and cold running water for ordinary lavatory,
pantry, and drinking and office cleaning purposes. If Tenant requires, uses
or consumes water for any other purposes or in unusually high quantities
(as reasonably determined by Landlord), then Landlord may (or, at
Landlord's direction, Tenant shall) install a meter or meters or other
means to measure Tenant's water consumption, and Tenant agrees to pay for
the cost of the meter or meters and the installation thereof, and to pay
for the maintenance of said meter equipment and/or to pay Landlord's cost
of other means of measuring such water consumption by Tenant. Tenant shall
reimburse Landlord for the cost of all water consumed as measured by said
meter or meters or as otherwise measured, including sewer rents, as
additional rent, within thirty (30) days after bills therefor are rendered.
Tenant shall reimburse Landlord for the cost of generating such hot water
in excess of hot water that shall be required by Tenant, as reasonably
determined by Landlord, for ordinary lavatory, dwyer type pantry, drinking
and office cleaning purposes, as additional rent, within thirty (30) days
after bills therefor are rendered; and
(iv) cleaning of the Demised Premises on Business Days in
accordance with the specifications set forth in Exhibit "E" annexed hereto
and made a part hereof, provided that the Demised Premises are kept in
reasonable order by Tenant (and further subject to the provisions of
Section 18.03 below). Tenant shall reimburse Landlord for the cost of
removal from the Demised Premises and the Building of so much of Tenant's
refuse and rubbish as shall exceed that ordinarily accumulated daily in the
routine of business office occupancy (collectively, "Extra Rubbish
Removal"). The reimbursement for Extra Rubbish Removal shall be made by
Tenant to Landlord, as additional rent, in an amount not to exceed
Landlord's actual cost therefor, within thirty (30) days after bills
therefor are rendered.
B. Tenant acknowledges receipt of advice from Landlord to the
effect that there is no Building air-conditioning or ventilation system
servicing the Demised Premises, and that all air-conditioning and
ventilation of the Demised Premises (other than the A/C Units that are
specified as part of Landlord's Work) shall be procured by Tenant, at
Tenant's own cost and expense. Tenant agrees that all air-conditioning
equipment now or hereafter installed by Tenant in the Demised Premises
shall be of the package air-cooled type, window units being expressly
prohibited. Tenant covenants and agrees that, at Tenant's own cost and
expense, Tenant shall maintain said air-conditioning equipment in good
working order at all times during the Term, perform all repairs thereto and
servicing thereof, and make replacement of all parts, as the same becomes
necessary. Tenant shall be required to pay in accordance with Article 20
below for all electric energy necessary or used in connection with
air-conditioning and ventilation in the Demised Premises. Said
air-conditioning equipment shall at all times be the exclusive property of
Landlord, and shall be surrendered to Landlord with the Demised Premises
upon the expiration or sooner termination of this Lease. Landlord shall
assign to Tenant any warranties obtained by Landlord for the Building
Standard A/C Units or the Upgraded A/C Units, as the case may be, and the
installation thereof.
Section 18.02. The term "Business Days" shall be deemed to mean all
days other than Saturdays, Sundays and Holidays. The term "Holidays" shall
be deemed to mean all federal, state, municipal and bank holidays and
Building Service Employees and Operating Engineer's Union contract holidays
now or hereafter in effect. As of the date hereof, the current Building
Holidays are as shown on Exhibit "J", annexed hereto and made a part
hereof.
Section 18.03.
-------------
A. If Tenant so elects, Tenant may, on no less than ninety (90)
days prior notice to Landlord, elect to clean the Demised Premises, in
which case Landlord shall not be obligated to provide cleaning services,
and Tenant shall, at Tenant's own cost and expense, keep the Demised
Premises clean and in order, to the reasonable satisfaction of Landlord
(including cleaning of the inside and outside of the windows once per
month), and for that purpose shall employ a person, who or which shall be
subject to the prior written approval of Landlord (which approval shall not
be unreasonably withheld or unduly delayed). In order to ensure effective
security in the Building, Tenant acknowledges the reasonableness of
Landlord's right at its option to request a party to be so employed by
Tenant and to act as maintenance and cleaning contractor for any office
cleaning, rubbish removal, waxing, polishing, lamp replacement, cleaning
and maintenance work in the Demised Premises, so long as such party is a
reputable person that charges no more than the rates in effect for
comparable services in Comparable Buildings. Landlord expressly reserves
the right to exclude from the Building any person attempting to perform any
such work or furnish any of such services without Landlord's prior written
approval or not so requested by Landlord.
B. If Landlord so elects, then, notwithstanding anything to the
contrary set forth in Subdivision 18.01A(iv) above, Tenant shall directly
procure the cleaning services and removal of refuse and rubbish which
Landlord would otherwise be obligated to provide pursuant to said
Subdivision 18.01A(iv). In the event that Landlord shall make the election
described in the first sentence of this Subsection 18.03B, Landlord shall
notify Tenant not less than thirty (30) days prior to the effective date
thereof, and Landlord shall then arrange for such procurement at no
additional cost or expense to Tenant, except for the cost of Extra Rubbish
Removal. Landlord shall have the right, on notice given to Tenant at any
time thereafter, to rescind such election.
Section 18.04. Landlord reserves the right to stop the furnishing of
the Building services and to stop service of the Building Systems, when
necessary, by reason of accident, or emergency, or for Repairs and
Alterations in the judgment of Landlord desirable or necessary to be made,
until said Repairs and Alterations shall have been completed; and Landlord
shall have no responsibility or liability for failure to supply heat,
elevator, plumbing, electric or other services during said period or when
prevented from so doing by strikes, lockouts, difficulty of obtaining
materials, accidents or by any cause beyond Landlord's reasonable control,
or by Legal Requirements or failure of electricity, water, steam, coal, oil
or other suitable fuel or power supply, or inability by exercise of
reasonable diligence to obtain electricity, water, steam, coal, oil or
other suitable fuel or power. In the event such services shall have been
stopped, Landlord agrees to use commercially reasonable efforts (but shall
not be obligated to use overtime or premium pay labor) to minimize
interference with Tenant's use and occupancy of the Demised Premises. No
diminution or abatement of rent or other compensation shall or will be
claimed by Tenant as a result therefrom, nor shall this Lease or any of the
obligations of Tenant be affected or reduced by reason of such
interruption, curtailment or suspension, nor shall the same constitute an
actual or constructive eviction.
Section 18.05. Tenant shall, at Tenant's own cost and expense, abide
by all requirements which Landlord may reasonably prescribe for the proper
protection and functioning of the Building Systems and the furnishing of
the Building services as well as cooperate with Landlord in any
conservation effort pursuant to a program or procedure promulgated or
recommended by any Legal Requirements; provided, however, that in each
instance, Landlord agrees not to enforce such requirements against Tenant
in a discriminatory manner.
Section 18.06. Landlord shall provide Tenant with a pro-rata share of
Building directory space.
ARTICLE 19
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TAXES; OPERATING EXPENSES
Section 19.01. In addition to the Minimum Rent and additional rent
hereinbefore reserved, Tenant covenants and agrees to pay Landlord, as
additional rent, all amounts computed in accordance with the provisions set
forth in this Article 19.
Section 19.02. For the purposes of this Lease:
A. The term "Taxes" shall mean (whether represented by one or
more bills) the total amount of all real estate taxes, assessments, special
assessments, water and sewer rents, vault taxes, governmental levies,
county taxes or any other governmental charge, general or special, ordinary
or extraordinary, unforeseen as well as foreseen, of any and every kind or
nature whatsoever, which are or may be levied, confirmed, charged, assessed
or imposed upon the Land, the Building and/or Landlord's interest therein,
and the sidewalks, plazas, streets and alleys in front of or adjacent
thereto, and any rights or interests appurtenant thereto under the laws of
the United States, the State of New York or any political subdivision
thereof, or by the City of New York or any political subdivision thereof
(including any assessments, levies, impositions, charges or taxes arising
from the location of the Land or Building within a Business Improvement
District or other area or zone which is subject to governmentally
authorized or civic related assessments, levies, impositions, charges or
taxes not generally applicable to other portions of the Borough of
Manhattan or the City of New York). If, due to a future change in the
method of taxation or in the taxing authority, a franchise, income, gross
receipts, transit, profit or other tax or governmental imposition, however
designated (including any tax, excise or fee, measured by or payable with
respect to any rents, licenses or other charges received by Landlord and
levied against Landlord, Land and/or the Building) shall be levied against
Landlord, the Land and/or the Building in substitution (in whole or in
part) for, or as an addition to or in lieu of, any Taxes, then such
franchise, income, gross receipts, transit, profit or other tax or
governmental imposition shall be deemed to be included within the
definition of the term "Taxes" for the purposes hereof, excluding any
general income, corporate franchise, estate, inheritance, succession,
capital stock or transfer tax levied on Landlord. Furthermore, provided
that Tenant shall have made the Tax Payment (as hereinafter defined) with
respect to the Tax Year in question on a timely basis, Taxes shall not
include any late charges, penalties, or interest which may be imposed by
reason of Landlord's late payment of Taxes.
B. The term "Tax Year" shall mean every twelve (12) consecutive
month period, all or any part of which shall occur during the Term,
commencing each July 1 or such other date as shall be the first day of the
fiscal tax year of The City of New York or other governmental agency
determined by Landlord to be responsible for the collection of
substantially all Taxes.
C. The term "Operating Year" shall mean each calendar year, all
or any part of which shall occur during the Term, following the Base
Operating Year.
D. The term "Operating Statement" shall mean a written statement
prepared by Landlord or Landlord's agent setting forth Landlord's
computation of the amount payable by Tenant pursuant to Section 19.04.
E. The term "Operating Expenses" shall mean (subject to the
provisions of Subsection 19.02G below and without duplication), for any
Operating Year, all costs and expenses paid or incurred for such Operating
Year by Landlord or on Landlord's behalf in connection with the ownership,
management, repair, maintenance, replacement, restoration or operation of
the Building, the Land and any plazas, sidewalks, curbs and appurtenances
thereto (provided that such items are not paid directly by Tenant pursuant
to any other provisions of this Lease), including the following items
(which items are illustrative of items to be included in Operating
Expenses):
(i) "Labor Costs" (as such term is defined below) of persons
performing services in connection with the operation, repair and
maintenance of the Land or the Building;
(ii) subject to the provisions of this Subsection 19.02E,
the cost of (including any rental cost of) materials and supplies used in
the operation, cleaning, safety, security, renovation, replacement, repair
and maintenance of the Building and its plazas (if any), sidewalks, curbs
and appurtenances, and any plant, equipment, facilities and systems
designed to supply heat, ventilation, air-conditioning or any other
services or utilities, or comprising any portion of the electrical, gas,
steam, plumbing, sprinkler, mechanical, communications, alarm, security or
fire/life safety systems or equipment serving the Demised Premises or the
common areas of the Building, including any sales and other taxes thereon;
(iii) without duplication of clause (ii) of this Subsection
19.02E, the depreciation (over the useful life of such hand tools or other
moveable equipment determined in accordance with generally accepted
accounting principles) for, or the rental cost or value (including
applicable sales taxes) of, hand tools and other movable equipment used in
the operation, cleaning, safety, security, repair or maintenance of the
Building and its plazas (if any), sidewalks, curbs and appurtenances;
(iv) reasonable legal, accounting and other professional
fees incurred in connection with the operation of the Land or the Building,
but only to the extent of the amount thereof that would be levied if
Landlord's interest in the Land and Building were the only asset of
Landlord;
(v) amounts incurred by Landlord for services, materials and
supplies furnished in connection with the operation, repair and maintenance
of any part of the Building and its plazas (if any), sidewalks, curbs and
appurtenances, including the heating, air-conditioning, ventilating,
plumbing, electrical, elevator, safety and other systems of the Building;
(vi) the cost of all charges for window cleaning and other
cleaning, janitorial, security and other services, in and about the
Building and its plazas (if any), sidewalks, curbs and appurtenances;
(vii) premiums paid by Landlord for rent, casualty, boiler,
sprinkler, plate-glass, liability and fidelity insurance with respect to
the Land or Building and its plazas (if any), sidewalks, curbs and
appurtenances, and any other insurance Landlord maintains or is required to
maintain with regard to the Land or the Building or the maintenance or
operation thereof and as shall be commensurate with such coverage
maintained by landlords of Comparable Buildings;
(viii) costs (including all applicable taxes) for
electricity (as measured by the Building's electric meters, and evaluated
under the same rate classification and frequency that Landlord is charged
by the public utility furnishing electricity to the Building), steam,
telephone, and other utilities for the portions of the Land and the
Building not leased and occupied by tenants in the Building and for
utilities and electricity (so measured and evaluated) consumed in
connection with the operation of the heating, ventilating and
air-conditioning equipment servicing the common or public areas of the
Building;
(ix) water charges and sewer rents or charges to the extent
not specifically reimbursable by tenants of the Building;
(x) reasonable telephone and stationery costs;
(xi) the cost of painting and otherwise decorating any
non-tenant areas of the Building, and its plazas (if any) and sidewalks;
(xii) the cost of installing, maintaining, repairing and
replacing (but not the initial purchase of) art works (except fine art), as
well as holiday decorations, for the lobby and other public portions of the
Building, and its plazas (if any) and sidewalks;
(xiii) the cost of exterior and interior landscaping of
non-tenant areas of the Land, the Building and its plazas (if any) and
sidewalks;
(xiv) dues, fees and contributions paid to civic
organizations and associations, or business improvement districts
representing Landlord, or of which Landlord is a member, in the City of New
York, which shall be deemed to be made in the largest number of
installments permitted;
(xv) franchise, license and similar fees and charges paid by
Landlord to any governmental agency for the privilege of owning, leasing,
operating, maintaining or servicing the Building or any of its equipment,
property or appurtenances;
(xvi) reasonable management fees of a third party managing
agent, or, if no third party managing agent is then employed by Landlord,
an amount in lieu, in either case, which is not in excess of the then
prevailing rates for management fees for managing agents not affiliates of
Landlord of first-class office buildings in Manhattan;
(xvii) the cost, or the cost of the rental, together with
the cost of installation, of any Building security or other system used in
connection with life or property protection (including the cost, or the
cost or value of the rental, of all machinery, electronic systems and other
equipment comprising any part thereof), as well as the cost of the
operation and repair of any such system in operation during the Base
Operating Year; provided, however, if and to the extent such costs are
capitalized according to generally accepted accounting principles, such
costs shall be amortized on a straight line basis over the useful life of
such system (determined in accordance with generally accepted accounting
principles);
(xviii) whether or not capitalized under generally accepted
accounting principles, costs for Alterations to the Building made by reason
of any Legal Requirements not in existence as of the date hereof, or the
requirements of any Insurance Boards or Landlord's insurer enacted after
the date hereof, provided, however, that if and to the extent such costs
are capitalized under generally accepted accounting principles, such costs
shall be amortized over the useful life of such Alterations, with an
interest factor calculated using the Interest Rate in effect at the time
that any such cost is incurred;
(xix) whether or not capitalized under generally accepted
accounting principles, the cost of improvements, equipment or machinery
having the effect of reducing Operating Expenses, provided, however, that
if and to the extent such costs are capitalized under generally accepted
accounting principles, such costs shall be amortized over the useful life
of such improvement, equipment or machinery with an interest factor
calculated using the Interest Rate in effect at the time that any such cost
is incurred, and provided further that Tenant shall not be required to pay
more on the basis of such amortized cost than it can be reasonably
anticipated that Tenant would have had to pay with respect to such
component of Operating Expenses absent such expenditure;
(xx) all other charges properly allocable to the repair,
management, maintenance, replacement, restoration or operation of the
Building in accordance with the then-prevailing real estate accounting
practices customarily used in Manhattan.
F. The term "Labor Costs" shall mean any and all expenses
incurred by Landlord or on Landlord's behalf which shall be related to
employment of personnel, including amounts incurred for wages, salaries and
other compensation for services, payroll, social security, unemployment and
other similar taxes, Workers' Compensation insurance, liability benefits,
pensions, hospitalization, retirement plans and insurance (including group
life and disability), uniforms and working clothes and the cleaning
thereof, and expenses imposed on or on behalf of Landlord pursuant to any
collective bargaining agreement relating to such employees. With respect to
employees who are not employed on a full-time basis with respect to the
Building, a pro rata portion of expenses allocable to the time any such
employee is employed with respect to the Building shall be included in
Labor Costs.
G. The term "Operating Expenses" shall not include the following
items:
(i) Labor Costs (including compensation, salaries and fringe
benefits) in respect of personnel above the grade of building manager,
officers and executives of Landlord, unless for work actually performed in
or about the Building ordinarily done by a third person, and then only at
compensation no higher than that which would have been paid to such third
person;
(ii) legal fees, leasing commissions, takeover expenses,
advertising expenses, promotional expenses, demolishing, painting,
carpeting, refurnishing, contributions, and other costs incurred in the
leasing or re-leasing of space in the Building;
(iii) insurance premiums, but only if and to the extent that
Landlord is specifically entitled to be reimbursed therefor by Tenant
pursuant to this Lease (other than pursuant to this Article) or by any
other tenant or other occupant of the Building pursuant to its lease (other
than pursuant to an operating expenses escalation clause contained
therein);
(iv) the cost of any item for which Landlord is reimbursed
by insurance or otherwise compensated, including reimbursement by any
tenant (including Tenant);
(v) the cost of any alterations, additions, changes,
replacements and improvements that are made solely in order to prepare
space for occupancy by a tenant and the costs incurred in performing work
or furnishing services to or for any tenant (including Tenant), whether at
such tenant's or Landlord's expense, to the extent that such work or
service is in excess of work or service that Landlord is obligated to
furnish to Tenant at Landlord's expense (except that cleaning costs shall
only be excluded from Operating Expenses in excess of the costs of
Landlord's Cleaning Services, regardless of whether tenant shall contract
directly with a cleaning contractor pursuant to the provisions of Section
18.03B;
(vi) the cost of capital improvements and capital
expenditures, other than those (a) which under generally applied real
estate practice are deemed expenses or deferred expenses, or (b) described
in clauses (xviii) and (xix) of Subsection 19.02E above;
(vii) the cost of electricity, fuel, gas, steam, or chilled
or condenser water furnished to the Demised Premises or any other space in
the Building leased, or available for lease, to tenants; provided, however,
that this exclusion shall not apply to the cost of heat, air conditioning,
and ventilation furnished to kiosks or booths in the lobby of the Building
or to the cost of any electricity consumed in connection with the operation
of, and the cost of any acquisition, installation, maintenance, repair or
replacement of, any water towers which service the nonleasable portions of
the Building and the Building's plazas, sidewalks, curbs and appurtenances;
(viii) Taxes and corporate franchise, inheritance, estate,
succession, gift, income and profit taxes, and capital stock taxes imposed
payable by Landlord;
(ix) financing and refinancing costs (including "points",
commitment fees, brokerage fees and legal fees), and payments of mortgage
interest and principal;
(x) payments of any amounts to any person seeking recovery
for liability of Landlord;
(xi) costs incurred to place the Building in compliance with
any Legal Requirements in effect on the date hereof with which the Building
does not comply, unless attributable to the acts or omissions of any tenant
in the Building (including Tenant) or of any agents, employees, servants or
contractors of such tenant;
(xii) costs to perform work or to provide services for any
tenant of the Building, but only if and to the extent that the same is in
excess of that which Landlord furnishes generally (with no additional
expense) to the tenants of the Building;
(xiii) the costs of any expansions to the rentable area of
the Building after the date of this Lease and any costs arising therefrom;
(xiv) the cost of the acquisition or leasing, restoring,
removing, or replacing of art work (including, without limitation,
sculptures, painting, and other objects of art) for the Building lobby
(provided that this exclusion shall not be deemed to exclude from Operating
Expenses the cost of the routine maintenance thereof);
(xv) payments for rental equipment, the cost of which would
constitute a capital expenditure if the equipment were purchased, except to
the extent that the same would be included above;
(xvi) any cost which would have been an Operating Expense
which is reimbursed to Landlord by Tenant under this Lease (other than
pursuant to this Article 19), or by any other tenant of the Building under
its lease (other than reimbursement pursuant to provisions of its lease
similar to this Article 19);
(xvii) costs associated with the operation of the legal
entity that constitutes Landlord (such as, by way of example, legal entity
formation, organization and qualification) as distinguished from the cost
of the operation of the Building;
(xviii) any costs incurred in connection with the transfer
or sale of any interest in the Building, Land, any Underlying Lease, or in
the entity or entities directly or indirectly comprising Landlord,
including any transfer, deed, mortgage recording or gains taxes payable by
Landlord;
(xix) fines, penalties, interest, or late charges incurred
by Landlord, if due to Landlord's late payment or due to violations of any
Legal Requirements;
(xx) bad debt losses, rent losses or reserves for either;
(xxi) ground rent and any other amounts (other than amounts
paid for the equivalent of Operating Expenses if same were paid directly by
Landlord) payable under any Underlying Lease;
(xxii) depreciation or amortization, except as provided
above;
(xxiii) any amounts paid by Landlord to any affiliate of
Landlord, to the extent such amount is in excess of the amount which would
have been paid by Landlord in the absence of such relationship;
(xxiv) costs associated with correcting defects in the
construction of the Building or defects in Landlord's Work, except costs
resulting from ordinary wear and tear;
(xxv) legal fees incurred in the enforcement of any leases
in the Building or in defending any suits brought by tenants in the
Building and other legal fees (other than legal fees incurred in connection
with the maintenance or operation of the Building or Land);
(xxvi) INTENTIONALLY DELETED;
(xxvii) any compensation paid to clerks, attendants or other
persons in commercial concessions operated by Landlord or an affiliate of
Landlord;
(xxviii) the costs of operating and maintaining any retail
areas and garages in the Building;
(xxix) the cost of repairs or rebuilding necessitated by
casualty or condemnation;
(xxx) costs incurred by Landlord in connection with
Landlord's breach of any of Landlord's covenants, agreements or indemnities
expressly made in this Lease or Landlord's gross negligence or willful
misconduct;
(xxxi) any costs incurred in the removal, containment,
encapsulation, disposal or repair of asbestos or any other "Hazardous
Material" (as such term is defined pursuant to Section 7.01 hereof).
(xxxii) fees incurred by Landlord in connection with
disputes of Landlord with tenants, prospective tenants, or other occupants,
purchasers, prospective purchasers, or mortgagees of the Building;
(xxxiii) any costs incurred by Landlord in connection with
the negotiation of leases for space in the Building or for any Underlying
Lease and any costs incurred by Landlord in connection with the obtaining
of any loan affecting the Land or the Building;
(xxxiv) the cost of repairs, replacements or restorations
necessitated by reason of fire or other casualty; and
(xxxv) the cost of any work or service performed for any
facility other than the Building, the appurtenant common areas and Building
Systems.
H. The cost of any item that was included in Operating Expenses
for the Base Operating Year and is no longer being incurred by Landlord by
reason of the installation of a labor saving device or other capital
improvement shall be deleted from Operating Expenses for the Base Operating
Year in connection with the calculation of the Operating Expense Payment
for all Operating Years from and after the Operating Year in which such
installation occurs, unless Tenant shall be paying Tenant's Proportionate
Share of the cost of such labor saving device or capital improvement as
part of the Operating Expense Payment for such Operating Year.
I. If, during all or part of any Operating Year (including the
Base Operating Year), Landlord shall not furnish any particular item(s) of
work or service (which would otherwise constitute an Operating Expense
hereunder) to portions of the Building due to the fact that (i) such
portions are not occupied or leased, (ii) such item of work or service is
not required or desired by the tenant of such portion, (iii) such tenant is
itself obtaining and providing such item of work or service, or (iv) for
any other reason, then, for the purposes of computing Operating Expenses,
the amount for such item and for such period shall be deemed to be
increased by an amount equal to the additional costs and expenses of
furnishing such item of work or services to such portion of the Building or
to such tenant. In connection with the immediately preceding clause (i),
there shall be no adjustment made to Operating Expenses for a particular
Operating Year unless less than ninety-five (95%) percent of the Building
was occupied in the relevant Operating Year, and any such adjustment shall
be made on the basis of ninety-five (95%) percent of the Building being
occupied.
J. Unless expressly excluded from Operating Expenses pursuant to
Subsection 19.02G above or expressly provided otherwise elsewhere in this
Lease, all items of cost and expense identified in this Lease as being "at
Landlord's cost and expense" or phrases of similar import (regardless of
whether the words "solely" or "exclusive" are used in connection therewith,
and regardless of whether specific reference is made to Landlord's right to
recoup such cost or expense as part of Operating Expenses) shall be
included in Operating Expenses.
Section 19.03.
-------------
A. (i) If, for any reason whatsoever (whether foreseen or
unforeseen), the Taxes applicable with respect to any Tax Year shall be
greater than the Base Tax Amount, then Tenant shall pay to Landlord as
additional rent for each such Tax Year an amount (the "Tax Payment") equal
to Tenant's Proportionate Share (as defined in Section 1.01 above) of the
amount by which the Taxes payable for such Tax Year exceeds the Base Tax
Amount.
(ii) Within a reasonable time period after the issuance by
the governmental authority having jurisdiction thereover of tax bills for
Taxes payable for any Tax Year, Landlord shall submit to Tenant a statement
(the "Tax Statement") which shall indicate the amount, if any, required to
be paid by Tenant as additional rent provided in this Section 19.03,
accompanied by a copy of the relevant tax bill(s) upon which such Tax
Statement is based, provided that Tenant shall not be responsible for any
Tax Statement first billed to Tenant more than three (3) calendar years
after the end of the Tax Year to which such Tax Statement relates, except
that if the taxing authority shall not have timely billed any amounts to
Landlord within three (3) years following the relevant Tax Year, then
Landlord may bill any such amounts to Tenant within one (1) year following
receipt of a bill thereafter from the taxing authority.
(iii) Within thirty (30) days after delivery of the Tax
Statement, Tenant shall pay to Landlord the additional rent as set forth on
such Tax Statement. Notwithstanding anything to the contrary contained
herein, Tenant's tax payment shall be payable in the same number of
installments as Landlord is required to pay to the taxing authority, unless
any Mortgagee shall require otherwise.
B. If, following the delivery of any Tax Statement, Landlord
shall receive a refund of Taxes with respect to a Tax Year for which Tenant
has paid any additional rent under the provisions of this Section, then
Tenant's Proportionate Share of the net proceeds of such refund, after
deduction of reasonable legal fees, appraiser's fees and other expenses
incurred in obtaining reductions and refunds and collecting the same (and
after deduction of such expenses for previous Tax Years which were not
offset by tax refunds for such Tax Years) shall be applied and allocated to
the periods for which the refund was obtained and, if Tenant shall not be
in default (after notice and the expiration of the applicable cure period)
of any of Tenant's obligations under this Lease, or, if Tenant shall be in
default of any of Tenant's obligations under this Lease (after notice and
the expiration of the applicable cure period), but shall cure such default
within sixty (60) days after Landlord's receipt of such refund of Taxes,
and shall notify Landlord of such cure within such sixty (60) day period
(except in connection with a breach which cannot be remedied or cured
within said sixty (60) day period, in which event the time of Tenant within
which to cure such breach shall be extended for such time as shall be
reasonably necessary to cure the same, but only if Tenant, within such
sixty (60) day period, shall promptly commence and thereafter proceed
diligently and continuously to cure such breach), Landlord shall refund to
Tenant or credit against the installment of Minimum Rent next due, an
amount equal to Tenant's Proportionate Share of the net proceeds of such
refund. In no event shall any refund or credit due to Tenant hereunder
exceed the sum paid by Tenant for such particular Tax Year. Only Landlord
shall be eligible to institute tax reduction or other proceedings to reduce
the assessed valuation of the Landlord or the Building. In no event shall
Tenant have the right to seek from the taxing authority any refund or
reduction of Taxes. If, prior to the delivery of a Tax Statement to Tenant
with respect to a particular Tax Year, Landlord shall obtain a reduction in
Taxes for that Tax Year, then Tenant shall pay to Landlord, within thirty
(30) days following the issuance to Tenant of a bill therefor, an amount
equal to Tenant's Proportionate Share of all costs and expenses (including
legal, appraisal and other expert fees) incurred by Landlord in obtaining
such reduction.
C. If there shall be a reduction or refund of Taxes for either
year used to compute the Base Tax Amount, Landlord shall furnish to Tenant
a statement indicating the amount thereof, and all prior and future
additional rent payments provided for in this Section 19.03 shall be
recalculated accordingly. Any additional payment due for any Tax Year shall
be made by Tenant within thirty (30) days after the furnishing to Tenant of
the revised statement.
D. If there shall be a reduction of the area of the Demised
Premises either due to a partial taking thereof by eminent domain or due to
subsequent agreement of the parties or if the area of the Demised Premises
shall be increased, Tenant's Proportionate Share of increases of Taxes
thereafter payable by Tenant under Subsection 19.03A shall, except as may
otherwise be expressly agreed in writing by the parties, be increased or
decreased on the basis of the ratio between the square feet of rentable
area in the Demised Premises before and after said increase or decrease in
area.
E. Tenant shall pay, before delinquency, all rent and occupancy
taxes and all property taxes and assessments on the furniture, fixtures,
equipment and other property of Tenant at any time situated on or installed
in the Demised Premises, and on additions and improvements in the Demised
Premises made or installed by Tenant subsequent to the Commencement Date,
if any. If at any time during the Term any of the foregoing are assessed as
a part of the real property of which the Demised Premises are a part,
Tenant shall pay to Landlord upon demand the amount of such additional
taxes as may be levied against said real property by reason thereof.
F. (i) Notwithstanding anything to the contrary contained in this
Lease, in the event that Landlord receives any refund or abatement of Taxes
pursuant to the "Lower Manhattan Plan" (as hereinafter defined), then, if
and for so long as Landlord shall actually receive such benefits, Tenant
shall be entitled to receive, as a credit against the rent due hereunder,
the benefit of such refund or abatement in the amount and in the manner
provided for in the Lower Manhattan Plan, but only to the extent required
to be provided under the Lower Manhattan Plan. Landlord shall use
reasonable efforts to become (and, if Landlord shall qualify for the Lower
Manhattan Plan, to remain) qualified under the Lower Manhattan Plan.
(ii) For purposes of this Subsection 19.03F, unless
otherwise defined in this Lease, all terms used herein shall have the
meanings ascribed to them in Title 4 of Article 4 of the New York Real
Property Tax Law (the "Lower Manhattan Plan"). The term "LMP Abatement
Benefits" shall mean the real estate tax abatement benefits of the Lower
Manhattan Plan. The term "Department" shall mean New York City Department
of Finance. For purposes of the Lower Manhattan Plan, "Tenant's
Proportionate Share" shall mean 2.72% percent as determined pursuant to
Section 1.01 hereof by dividing the net rentable square footage contained
in the Demised Premises by the net rentable square footage contained in the
Building owned by Landlord.
(iii) Tenant represents that there shall be more than 125
employees located at the Demised Premises throughout the Term of this
Lease.
(iv) In accordance with the Lower Manhattan Plan and
notwithstanding anything to the contrary contained in this Lease, Landlord
agrees to allow Tenant a credit against the Minimum Rent and the Recurring
Additional Rent (including the Tax Payment (as defined in Subsection 19.03
hereof)) payable by Tenant hereunder in an amount that, in the aggregate,
equals the full amount of any abatement of real estate taxes granted for
the Demised Premises pursuant to the Lower Manhattan Plan and actually
received by Landlord (the "Actual LMP Benefits"). Landlord shall, within
thirty (30) days after its receipt of the Actual LMP Benefits, credit the
full amount thereof against the next installment(s) of Minimum Rent and/or
Recurring Additional Rent becoming due hereunder.
(v) Tenant shall promptly pay to Landlord, as additional
rent hereunder, the amount of all or any portion of the Actual LMP Benefits
that have been credited against Minimum Rent and/or Recurring Additional
Rent becoming due hereunder, and which may thereafter actually be revoked,
to the extent such Minimum Rent and/or Recurring Additional Rent must be
repaid by Tenant (including, without limitation, if such Actual LMP
Benefits are revoked due to the exercise by Tenant of its right to assign
or sublease pursuant to Article 10 of this Lease), together with any
interest and/or penalties imposed against Landlord in connection with such
Actual LMP Benefits; provided, however, that Tenant shall be responsible
for any amounts due under this Subsection 19.03G(v) if and only if Tenant
or any Persons Within Tenant's Control shall be responsible, whether as a
result of any act, omission, carelessness, negligence, or misconduct, for
the revocation of such Actual LMP Benefits.
(vi) In accordance with Section 499-c(5) of the Lower
Manhattan Plan, Landlord agrees and informs Tenant that:
(a) an application for abatement of real property taxes
pursuant to Title 4 of Article 4 of the New York Real Property Tax Law
will be made for the Demised Premises pursuant to Subsection 3.04J
hereof;
(b) the rent, including amounts payable by Tenant for
Taxes, will accurately reflect any abatement of Taxes granted pursuant
to Title 4 of Article 4 of the New York Property Tax Law for the
Demised Premises in accordance with Subsection 3.04F hereof;
(c) at least ten dollars per square foot or thirty-five
dollars per square foot must be spent on improvements to the premises
and the common area, the amount being dependent upon the length of the
lease and whether it is a new, renewal or expansion lease; and
(d) all abatements granted with respect to the Building
pursuant to Title 4 of Article 4 of the New York Real Property Law
will be revoked if, during the Benefit Period, real estate taxes or
water or sewer charges or other lienable charges are unpaid for more
than one year, unless such delinquent amounts are paid as provided in
subdivision four of section four hundred ninety-nine-f of Title 4 of
the New York Real Property Law.
(vii) Landlord covenants and agrees that (i) Landlord shall
timely pay all Taxes, water and sewer charges and other lienable charges
that become due and payable during the period for which Tenant is entitled
to receive the Actual LMP Benefits and (ii) there shall be no Taxes, water
and sewer charges or other lienable charges due and owing with respect to
the Building on the date the "Abatement Application" (as hereinafter
defined) is filed with the Department, unless such Taxes or charges are
being paid in timely installments pursuant to a written agreement with the
Department or other appropriate agency.
(viii) Landlord, upon not less than thirty (30) days advance
written notice from Tenant, agrees to cooperate with Tenant to execute,
deliver and file, together with the Abatement Application, the affidavit
required by Section 499-c(7) of the Lower Manhattan Plan, and thereafter to
diligently pursue the processing of such application. Landlord, upon not
less than thirty (30) days advance written notice from Tenant, agrees to
cooperate with Tenant to execute, deliver and file, within sixty (60) days
after the Commencement Date, an application (the "Abatement Application")
for a certificate of abatement in accordance with Section 499-d of the
Lower Manhattan Plan. Landlord and Tenant each further agree to provide all
other information required by the Department of Finance pursuant to Section
499-d of the Lower Manhattan Plan and to otherwise comply with the
provisions of said Section 499-d and the Lower Manhattan Plan. Tenant shall
have no right to make any separate application under the Lower Manhattan
Plan without Landlord's participation.
(ix) Tenant shall promptly pay to Landlord, upon such
request of Landlord and as additional rent hereunder, the amount of any
costs incurred by Landlord in connection with the performance of Landlord's
obligations pursuant to this Section 19.03, including, without limitation,
the amount of any administrative charges or fees imposed by the Department
in connection with such compliance, including, without limitation, the
$500.00 fee due in connection with the Abatement Application. Tenant shall
indemnify and hold harmless Landlord and its respective partners,
directors, officers, principals, shareholders, agents and employees from
and against any and all losses, costs, damages and expenses (including
attorney's fees) arising from or in connection with Tenant's failure to pay
such charges or fees or from Tenant's failure to comply with the provisions
and requirements of the Lower Manhattan Plan or this Section 19.03.
(x) Tenant shall notify Landlord of any vacation or
subletting of the Demised Premises or any portion thereof, or any
assignment of Tenant's interest in this Lease, which would result in the
revocation of any abatement or other benefits, or any portion thereof,
granted pursuant to the Lower Manhattan Plan. Within thirty (30) days
following demand therefor, Tenant shall reimburse Landlord for any interest
or penalties imposed by any governmental authority in connection with the
revocation of the abatement or other benefits resulting directly from
Tenant's failure to so notify Landlord of any such vacation, subletting or
assignment.
(xi) Landlord does not warrant or represent that any
abatement, reduction or other benefit described in this Section 19.03 or
the Lower Manhattan Plan is available or will be obtained for the Building,
or by Landlord and/or Tenant, except as expressly provided to the contrary
herein. Landlord shall have no liability to Tenant, and the Minimum Rent
and Recurring Additional Rent set forth in this Lease will not be abated or
reduced, if and to the extent that such abatement or reduction under the
Lower Manhattan Plan is denied, reduced, suspended, revoked or terminated
for any reason, except if the same shall result solely from the gross
negligence or willful misconduct of Landlord.
Section 19.04.
-------------
A. For each Operating Year, any part of which shall occur during
the Term, Tenant shall pay an amount (the "Operating Expense Payment")
equal to Tenant's Proportionate Share of the amount, if any, by which
Operating Expenses for such Operating Year shall exceed the Operating
Expenses for the Base Operating Year; provided, however, that if the
Commencement Date shall occur other than on the first day of an Operating
Year or if the Term shall expire or be sooner terminated on other than the
last day of an Operating Year, then the Operating Expense Payment in
respect thereof shall be prorated to correspond to that portion of such
Operating Year occurring within the Term.
B. At any time during each Operating Year, Landlord may furnish
to Tenant a written statement (an "Estimate Statement") setting forth
Landlord's reasonable estimate of the Operating Expense Payment for such
Operating Year (the "Estimated Payment"). Tenant shall pay to Landlord on
the first day of each month during each Operating Year an amount equal to
one twelfth (1/12th) of the Estimated Payment. If Landlord furnishes an
Estimate Statement for an Operating Year subsequent to the commencement
thereof, then: (i) until the first day of the month following the month in
which the Estimate Statement shall be furnished to Tenant, Tenant shall
continue to pay to Landlord on the first day of each month an amount equal
to the monthly sum payable by Tenant to Landlord with respect to the most
recent Operating Year; (ii) promptly after the Estimate Statement shall be
furnished to Tenant, Landlord shall give notice to Tenant stating whether
the amount previously paid by Tenant to Landlord for the current Operating
Year was greater or less than the installment of the Estimated Payment to
be paid for the current Operating Year, and (x) if there shall be a
deficiency, Tenant shall pay the amount thereof to Landlord within thirty
(30) days after demand therefor, or (y) if there shall have been an
overpayment, Landlord shall credit the amount thereof against the next
monthly installment of the Minimum Rent payable under this Lease; and (iii)
on the first day of the month following the month in which the Estimate
Statement shall be furnished to Tenant, and monthly thereafter throughout
the remainder of the Operating Year, Tenant shall pay to Landlord an amount
equal to one-twelfth (1/12th) of the Estimated Payment shown on the
Estimate Statement. Landlord may during an Operating Year (but not more
than three (3) times with respect to an Operating Year), furnish to Tenant
a revised Estimate Statement, and, if a revised Estimate Statement shall be
furnished to Tenant, the Estimated Payment for such Operating Year shall be
adjusted in the same manner as provided in the preceding sentence. If an
Estimate Statement or a revised Estimate Statement, as the case may be,
shall show an increase of more than five (5%) percent of the Operating
Expense Amount that Tenant was required to pay for the immediately prior
Operating Year, Landlord shall furnish to Tenant in reasonable detail the
reasons therefor.
C. As soon as reasonably practicable after each Operating Year,
Landlord shall furnish to Tenant an annual Operating Statement (the "Annual
Statement") for such Operating Year, provided that Tenant shall not be
responsible for any Operating Statement first billed to Tenant more than
three (3) calendar years after the end of the Operating Year to which such
Operating Statement relates. If the Annual Statement shows that the
Estimated Payment (or other payments) for such Operating Year exceeds the
Operating Expense Payment which should have been paid for such Operating
Year, then Landlord shall credit the amount of such excess against the next
monthly installment of Minimum Rent payable under this Lease (except at the
end of the Term, when Landlord shall refund the amount of such excess to
Tenant within thirty (30) days thereafter, provided that there shall not
then be any remaining uncured defaults of any of Tenant's monetary
obligations hereunder or of any of the material terms, covenants and
conditions to be performed or observed by Tenant under this Lease); if the
Annual Statement for such Operating Year shows that the Estimated Payment
(or other payments) for such Operating Year was less than the Operating
Expense Payment (or other payments) which should have been paid for such
Operating Year. Tenant shall pay the amount of such deficiency to Landlord
within twenty (20) days after receipt of the Annual Statement.
D. Each Annual Statement shall be conclusive and binding upon
Tenant unless, within one hundred and eighty (180) days after receipt
thereof, Tenant shall give Landlord written notice (the "Operating Dispute
Notice") that Tenant requests additional information with respect to the
Annual Statement or that Tenant disputes the correctness of the Annual
Statement, specifying the particular respects in which the Annual Statement
is claimed to be incorrect, to the extent such information is available. If
such Operating Dispute Notice shall be timely delivered by Tenant to
Landlord, then, provided that Tenant shall pay or have paid to Landlord the
amount shown to be due to Landlord on the disputed Annual Statement, Tenant
and its representatives shall have the right, not later than forty-five
(45) days after Landlord's receipt of Tenant's Operating Dispute Notice,
and not earlier than five (5) Business Days after Landlord's receipt of a
written request therefor, to examine during regular business hours at a
location in New York City designated by Landlord, Landlord's relevant books
and records with respect to Operating Expenses relating to the Building for
the period in question (the "Relevant Records") in order to verify the
accuracy of the relevant Annual Statement; provided, however, that Tenant
and its authorized representatives shall use reasonable efforts to minimize
interference to Landlord's business operations during the course of such
examination. Tenant shall not disclose (and shall require all of Tenant's
representatives not to disclose) to any third party any information
obtained in the course of such examination, except if and to the extent the
same shall be required by a court of competent jurisdiction. Tenant
recognizes and agrees that Landlord's books and records (and those of
Landlord's agents) with respect to the operation of the Land and the
Building are confidential, and that, except as provided herein, Tenant
shall have no right to inspect the same. If Tenant shall have timely
delivered the Operating Dispute Notice to Landlord, and the parties shall
not be able to resolve such dispute within sixty (60) days after Tenant or
its authorized representatives have examined the Relevant Records or the
Relevant Records have been made available for examination, as the case may
be, then, provided that Tenant shall have theretofore paid to Landlord the
amount shown to be due to Landlord on the disputed Annual Statement, either
party may refer the decision of the issue raised to a reputable independent
firm of certified public accountants mutually agreeable to the parties, and
the decision of such accountants shall be conclusive and binding upon the
parties. The fees and expenses involved in such decision shall be borne by
the unsuccessful party (and if both parties are partially unsuccessful, the
accountants shall apportion the fees and expenses between the parties based
on the degree of success of each party). Tenant agrees that,
notwithstanding any such dispute (and pending resolution thereof), Tenant
shall timely pay to Landlord in full the amount shown to be due to Landlord
on the disputed annual statement. If such dispute is resolved in Tenant's
favor, Landlord shall either reimburse Tenant for any overpayment or credit
the amount of such overpayment against the next monthly installment of
Minimum Rent payable under this Lease.
Section 19.05. Nothing contained in this Article 19 or any other
provision of this Lease concerning the payment of additional rents shall be
construed so as to reduce the Minimum Rent below the amount set forth in
Section 1.01, plus any increases therein pursuant to any provision of this
Lease.
Section 19.06. Any payments due hereunder for any period of less than
a full Tax Year or Operating Year at the commencement or end of the Term
shall be equitably prorated. In the event of any change in the fiscal
period constituting a Tax Year, Taxes levied during any transitional period
shall be added to the first subsequent Tax Year for purposes of Section
19.03. Except as otherwise provided in Subsection 19.04C, any delay or
failure by Landlord to render any statement under the provisions of this
Article 19 shall not prejudice Landlord's right hereunder to render such
statement for prior or subsequent periods. Except as other wise provided in
Subsection 19.04C, any delay or failure by Landlord in making any request
or demand for any amount payable by Tenant pursuant to the provisions of
this Article 19 shall not constitute a waiver of, or in any way diminish,
the continuing obligation of Tenant to make such payment. Except as
otherwise provided in Subsection 19.04D above, all statements rendered by
Landlord pursuant to the provisions of this Article 19 shall be deemed
final and conclusive as to Tenant, unless, within ninety (90) days
following rendition of any such statement, Tenant shall, in good faith and
with reasonable specificity, notify Landlord that such statement contains
mathematical error. Tenant agrees that, notwithstanding any dispute as to
the correctness of a statement (and pending resolution of such dispute),
Tenant shall timely pay to Landlord in full the amount shown to be due to
Landlord on the disputed statement. If such dispute is resolved in Tenant's
favor, Landlord shall either reimburse Tenant for any overpayment or credit
the amount of such overpayment against the next monthly installment of
Minimum Rent payable under this Lease (except at the end of the Term, when
Landlord shall refund the amount within thirty (30) days following such
resolution). The obligations of Landlord or Tenant with respect to any
payment required pursuant to the provisions of this Article 19 shall
survive the expiration or sooner termination of the Term.
ARTICLE 20
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ELECTRICITY
Section 20.01. Subject to the provisions of this Article 20 and other
provisions of this Lease, Landlord shall furnish the electricity that
Tenant shall reasonably require in the Demised Premises for normal business
office purposes, making available to the Demised Premises a capacity (the
"Existing Capacity") based on the feeders, risers, wiring and panel boards
currently servicing the Demised Premises of twelve (12) watts per rentable
square foot (on a connected load basis), inclusive of electricity used by
the machinery and equipment of Tenant's air-conditioning unit(s) servicing
the Demised Premises. Landlord shall not be liable to Tenant for any loss
or damage or expense which Tenant may sustain or incur if either the
quantity or character of electric service shall be changed or shall no
longer be available or suitable for Tenant's requirements. At Landlord's
election, Landlord shall furnish and install all replacement lighting
tubes, lamps, bulbs and ballasts required in the Demised Premises, and
Tenant shall pay to Landlord or Landlord's designated contractor upon
demand the then established charges of Landlord or said contractor, as the
case may be, provided the same are commercially reasonable.
Section 20.02.
-------------
A. Subject to the provisions of Section 20.03 below, Tenant's
consumption and demand of all electricity made available to the Demised
Premises (including the machinery and equipment of Tenant's
air-conditioning unit(s) servicing the Demised Premises) or to Tenant
elsewhere in the Building (collectively, "Tenant Electricity") shall be
measured by one or more submeters (collectively, the "Submeter") to be
furnished and installed by Landlord, the cost and expense of which shall be
borne equally by Landlord and Tenant, in a location designated by Landlord.
Landlord agrees to use commercially reasonable efforts (but shall not be
obligated to use overtime or premium pay labor) to install the Submeter by
the date Tenant first occupies the Demised Premises for the conduct of its
business therein. Landlord shall also, at Tenant's cost and expense,
install connections from the risers and/or circuits servicing the Demised
Premises to the Submeter, and perform all other work necessary for the
furnishing of Tenant Electricity by Landlord in the manner provided for in
this Section 20.02. Tenant shall pay all such costs and expenses to
Landlord, as additional rent, within thirty (30) days after being billed
therefor.
B. Tenant agrees to purchase Tenant Electricity from Landlord or
Landlord's designated agent at terms and rates equal to "Landlord's
Electricity Cost" (as such term is defined below), plus five (5%) percent
thereof to reimburse Landlord for administrative services in connection
with supplying, measuring and billing Tenant Electricity and for
transmission and transformer losses. If more than one submeter shall
measure Tenant Electricity, then the service rendered through each such
submeter shall be aggregated and billed in accordance with the foregoing
rate, unless Landlord shall elect separate billing on a per meter basis.
Landlord may at any time render bills for Tenant Electricity in accordance
with the foregoing provisions, and Tenant shall pay all amounts shown on
said bills to Landlord, as additional rent, within thirty (30) days
following the date that such bills shall have been rendered.
C. For purposes of this Article 20 and the other provisions of
this Lease:
(i) The term "Landlord's Electricity Cost", shall mean the
cost per kilowatt hour and cost per kilowatt demand, by time of day, if
applicable, or other applicable billing method, to Landlord of purchasing
electricity for the Building, including fuel adjustment charges (as
determined for each month of the relevant period), rate adjustment charges,
sales tax, and/or any other factors used by the public utility furnishing
electric service to the Building (the "Public Utility") in computing its
charges to Landlord, applied to the kilowatt hours of electricity and
kilowatts of demand purchased by Landlord during a given period.
(ii) The term "Electricity Additional Rent" shall mean all
amounts computed in accordance with Subsection 20.02B above, and Landlord's
determination of such amounts shall be binding and conclusive on Tenant,
unless, within one hundred eighty (180) days after an electricity bill
shall have been rendered, Tenant shall give Landlord written notice (the
"Electricity Dispute Notice") that Tenant disputes the correctness of such
electricity bill, specifying whether such electricity bill contains a
mathematical error or whether there has been an error in reading the
Submeter(s). If Tenant shall have timely delivered the Electricity Dispute
Notice to Landlord, and the parties shall not be able to resolve such
dispute within one hundred eighty (180) days thereafter, then, provided
that Tenant shall have theretofore paid to Landlord the amount shown to be
due to Landlord on the disputed electricity bill, either party may refer
the decision of the issue raised to a reputable independent third party
electrical consultant mutually agreeable to the parties, and the decision
of such electrical consultant shall be conclusive and binding upon the
parties. The fees and expenses involved in such decision shall be borne by
the unsuccessful party (and if both parties are partially unsuccessful, the
electrical consultant shall apportion the fees and expenses between the
parties based on the degree of success of each party). Tenant agrees that,
notwithstanding any such dispute (and pending resolution thereof), Tenant
shall timely pay to Landlord in full the amount shown to be due to Landlord
on the disputed electricity bill. If such dispute is resolved in Tenant's
favor, Landlord shall either reimburse Tenant for any overpayment or credit
the amount of such overpayment against the next monthly installment(s) of
Minimum Rent payable under this Lease. .
D. If the Submeter should fail to properly register or operate at
any time during the Term for any reason whatsoever, then, unless Landlord
shall otherwise elect in accordance with the provisions of Section 20.03
below, Landlord may estimate the Electricity Additional Rent, and when the
Submeter shall again become properly operative, an appropriate
reconciliation shall be made, by Tenant paying any deficiency to Landlord
within ten (10) Business Days after demand therefor, or by Landlord
crediting Tenant with the amount of any overpayment, as the case may be.
E. Landlord and Tenant agree that the Submeter might be installed
or become operational subsequent to the date (the "Initial Occupancy Date")
that Tenant or any Person Within Tenant's Control first enters the Demised
Premises. In such event, Landlord, in Landlord's sole discretion, may: (i)
furnish Tenant Electricity on a "rent inclusion" basis in accordance with
the provisions of Section 20.03 below for the period between the
Commencement Date and such time as the Submeter shall be installed and
operating; or (ii) estimate the Electricity Additional Rent payable by
Tenant for the period commencing on the Initial Occupancy Date and ending
on the "Occupancy Reading Date" (hereinafter defined), and Tenant shall pay
to Landlord, within thirty (30) days after demand therefor, the amount set
forth on Landlord's estimate and, after rendition of a subsequent
statement, an appropriate reconciliation shall be made for any deficiency
owed by Tenant, or any overage paid by Tenant; or (iii) render a statement
to Tenant after the first reading of the Submeter shall be made (the date
upon which the Submeter shall be first read being herein called the
"Occupancy Reading Date"), which shall be on or about the date upon which
Tenant shall have commenced the conduct of Tenant's business operations in
the Demised Premises, and the amount calculated based on the Submeter
reading on the Occupancy Reading Date shall be determined on a per diem
basis and then multiplied by the number of days from the Initial Occupancy
Date through the Occupancy Reading Date to arrive at the amount due for
said period, and Tenant shall pay the Electricity Additional Rent to
Landlord on the basis of such Submeter reading within thirty (30) days
after rendition of Landlord's statement setting forth such computation.
Section 20.03.
-------------
A. Notwithstanding anything to the contrary contained in the
provisions of Section 20.02 above, if at any time during the Term said
submeter(s) shall not then be installed or operating, despite Landlord's
good faith efforts, or if Landlord shall be compelled by the Public Utility
or any Legal Requirement to discontinue furnishing electricity to Tenant on
a submetered basis, or if Landlord shall elect to discontinue furnishing
electricity to substantially all of the office tenants of the Building on a
submetered basis, then (subject to the provisions of Section 20.05 below)
Landlord shall furnish electricity to the Demised Premises in quantity
equal to the Existing Capacity on a "rent inclusion" basis, and there shall
be no separate charge to Tenant for such electricity; it being agreed that
if Landlord is not able to collect from Tenant all or a portion of the
allowable costs (as described in this Lease) incurred by Landlord for
Tenant Electricity for any reason, then the Minimum Rent shall be increased
by an amount equal to Landlord's actual costs to provide and deliver Tenant
Electricity less any portion of such allowable costs actually collected by
Landlord, and all references to Minimum Rent throughout this Lease shall
include the increase set forth herein, for so long as Landlord shall not be
able to collect from Tenant the allowable costs incurred by Landlord for
Tenant Electricity.
B. For the purposes of this Article 20, and other provisions of
this Lease:
(i) The term "Base Electric Charge" shall initially mean the
amount of $133,810.35 per annum (except during the period which shall begin
on the Commencement Date and end on the earlier to occur of (i) the day on
which Tenant shall first occupy the Demised Premises for the purpose of
conducting Tenant's business operations therein, or (ii) the expiration of
the Free Rent Period, during which period the term "Base Electric Charge"
shall mean the amount of $46,951.00 per annum).
(ii) The term "Electric Inclusion Factor" shall mean an
amount, to be included as a component of Minimum Rent, equal to the sum of
the Base Electric Charge plus all increases thereto pursuant to the
provisions of this Article 20; it being understood and agreed that at all
times the Electric Inclusion Factor shall not be less than the amount
computed by multiplying Landlord's Electricity Cost by Tenant's kilowatt
hour and kilowatt demand usage as determined by the estimate of Landlord's
electrical consultant ("Landlord's Consultant"), plus five (5%) percent of
the resulting total.
C. Landlord and Tenant agree that, during any period in which
electricity shall be furnished to the Demised Premises on a "rent
inclusion" basis, the annual Minimum Rent set forth in Section 1.01 above
shall be increased by an amount equal to the Base Electric Charge, as the
same may be adjusted pursuant to the provisions of this Article 20. Tenant
acknowledges and agrees that the Base Electric Charge currently represents
the amount initially included in the Electric Inclusion Factor to
compensate Landlord for the electrical wiring and other installations
necessary for, and for Landlord's obtaining and making available to Tenant,
the redistribution of electric energy to the Demised Premises as an
additional service, and that such Base Electric Charge component of the
Electric Inclusion Factor is subject to adjustment as provided herein based
on Tenant's consumption and/or demand of electricity, but shall in no event
be subject to reduction.
D. At any time, and from time to time, after Tenant shall have
entered into possession of the Demised Premises or any portion thereof, and
electricity shall be furnished to the Demised Premises on a "rent
inclusion" basis, Landlord and Landlord's agents and consultants may survey
the electrical fixtures, appliances and equipment located in or servicing
the Demised Premises and Tenant's consumption and demand of electricity
therein to (i) ascertain whether Tenant is complying with Tenant's
obligations under this Article 20, and (ii) determine whether the then
Electric Inclusion Factor included in Minimum Rent is less than the
Electric Inclusion Factor computed as a result of said survey, and to
adjust the Electric Inclusion Factor component of Minimum Rent in
accordance with the following computations:
(x) In the case of the first electric survey, if the cost or
value of Tenant's electric consumption and/or demand shown by the survey
shall exceed the initial Electric Inclusion Factor, then the Electric
Inclusion Factor component of the Minimum Rent shall be increased by the
amount of such excess retroactive to the date on which increases in the
connected load or changes in electric consumption occurred (as reasonably
determined by Landlord's Consultant); and
(y) In the event of the second and subsequent surveys, if
the cost or value of Tenant's electric consumption and/or demand shown by
such survey shall exceed the then Electric Inclusion Factor, then such
Electric Inclusion Factor component of Minimum Rent shall be increased by
the amount of such excess, effective as of the earlier of (a) the date of
such survey or (b) the date on which increases in the connected power load
or changes in electric consumption occurred (as reasonably determined by
Landlord's Consultant).
E. The initial amount of each such increase shall be paid by
Tenant to Landlord within thirty (30) days after Landlord furnishes Tenant
with a statement thereof, and thereafter, such increase shall be added to
each of the monthly installments of Minimum Rent. The cost of each survey
made pursuant to Subsection 20.03D above shall be borne equally by Landlord
and Tenant. The determination of Landlord's Consultant as to any increase
in the Minimum Rent based on such average monthly electric energy
consumption and/or demand shall be conclusive and binding upon the parties
from and after the delivery of a copy of such determination to Landlord and
Tenant, unless, within thirty (30) days thereafter, Tenant shall dispute
such determination by having an independent reputable electrical
consultant, selected and paid for by Tenant ("Tenant's Consultant"),
consult with Landlord or Landlord's Consultant as to said determination. If
the parties or their respective consultants shall agree as to a resolution
of said dispute, then such agreement shall be binding upon the parties, or
if the difference between them shall be eight (8%) percent or less of the
determination made by Landlord's Consultant, then the determination made by
Landlord's Consultant shall be binding upon the parties. If Landlord's
Consultant and Tenant's Consultant shall not agree within the said eight
(8%) percent of each other, then Landlord's Consultant and Tenant's
Consultant shall jointly select a third duly qualified independent,
reputable electrical consultant who shall determine the matter and whose
decision shall be binding upon both parties with the same force and effect
as if a non-appealable judgment had been entered by a court of competent
jurisdiction. If Landlord's Consultant and Tenant's Consultant shall not
agree upon such a third electrical consultant, the matter shall be
submitted to the American Arbitration Association in New York City to be
determined in accordance with its rules and regulations, and the decision
of the arbitrators shall be binding upon the parties with the same force
and effect as if a non-appealable judgment had been entered by a court of
competent jurisdiction. Any charges of such third consultant or of the
American Arbitration Association, and all costs and expenses of either,
shall be borne equally by both parties. Notwithstanding the foregoing,
until such final determination, Tenant shall pay Minimum Rent to Landlord
in accordance with the determination made by Landlord's Consultant. After
such final determination, the parties shall promptly make adjustment for
any deficiency owed by Tenant or any overage paid by Tenant.
F. If at any time during the Term the electric rate charged by
the Public Utility (the "Electric Rate") shall be increased or decreased by
the Public Utility, then, effective as of the date of each such change in
the Electric Rate, the Electric Inclusion Factor included in the Minimum
Rent shall be increased or decreased in proportion to such change in the
Electric Rate (as determined by Landlord's Consultant, whose determination
shall be binding and conclusive upon the parties, subject to the provisions
of Subsection 20.03E above).
G. At Landlord's request, the parties shall execute, acknowledge
and deliver to each other a supplemental agreement in such form as Landlord
shall reasonably require to reflect each change in the Minimum Rent under
this Article 20, but each and every such change shall be effective as of
the effective date described in the provision under which such change is
provided for, even if such agreement shall not be executed and delivered.
Section 20.04.
-------------
A. Tenant's use of electricity in the Demised Premises shall not
at any time exceed the Existing Capacity. In order to ensure that the
Existing Capacity is not exceeded and to avert possible adverse effect upon
the Building's distribution of electricity via the Building's electric
system, if at any time the total connected load of Tenant's fixtures,
appliances and equipment in the Demised Premises shall equal or exceed the
Existing Capacity, then Tenant shall not, without Landlord's prior consent
in each instance, connect any additional fixtures, appliances or equipment
to the Building's electric system, or make any alterations or additions to
the electric system of the Demised Premises existing on the Commencement
Date.
B. In the event that Tenant shall request electric energy in
addition to the Existing Capacity, and if and to the extent that Landlord
shall determine that such additional electric energy is available for use
by Tenant without (x) resulting in allocation to Tenant of a
disproportionate amount of available electric energy and (y) otherwise
adversely affecting the Building or any of the other tenancies therein,
then Landlord shall connect such additional electric energy to the Demised
Premises, and Tenant shall pay to Landlord a charge equal to Landlord's
then established connection charge for each additional amp of electric
energy or portion thereof so supplied to the Demised Premises, in addition
to the cost of installing additional risers, switches and related equipment
necessary in providing such additional electric energy.
Section 20.05.
-------------
A. Landlord reserves the right to discontinue furnishing
electricity to Tenant in the Demised Premises at any time upon not less
than sixty (60) days notice to Tenant, if Landlord shall be compelled by
the Public Utility or any Legal Requirements, it being agreed that such
compulsion shall include Landlord's inability to collect from Tenant the
allowable electric charges set forth in this Lease, except that, if Tenant
shall immediately commence and diligently pursue to completion arrangements
to obtain electricity from the Public Utility upon receipt of Landlord's
notice that Landlord intends to discontinue furnishing electricity to the
Demised Premises, then Landlord shall postpone such discontinuance for a
sufficient amount of time so as to allow Tenant to obtain electricity
directly from the Public Utility. If Landlord exercises such right, this
Lease shall continue in full force and effect and shall be unaffected
thereby, except that, from and after the effective date of such
discontinuance, Landlord shall not be obligated to furnish electricity to
Tenant.
B. If Landlord so discontinues furnishing electricity to Tenant,
then Tenant shall, at Tenant's own cost and expense, promptly arrange to
obtain electricity directly from the Public Utility. Such electricity may
be furnished to Tenant by means of the then existing Building System
feeders, risers and wiring, but only if and to the extent that Landlord
determines the same to be available, suitable and safe for such purpose.
All meters and additional panel boards, feeders, risers, wiring and other
conductors and equipment which may be required to obtain electricity
directly from such Public Utility shall be: (x) if located entirely within
the Demised Premises, installed and connected by Tenant, at Tenant's own
cost and expense, but only after having received Landlord's prior written
consent thereto (which consent shall not be unreasonably withheld or unduly
delayed), and Tenant shall thereafter maintain, repair and replace the
same, as necessary, at Tenant's own cost and expense; and (y) if located
wholly or in part outside of the Demised Premises, installed, connected and
thereafter maintained, repaired and replaced, as necessary, by Landlord, at
Tenant's cost and expense. Only rigid conduit will be allowed in connection
with any such installation.
Section 20.06. If, pursuant to any Legal Requirement, the amount which
Landlord shall be permitted to charge Tenant for the purchase of
electricity pursuant to this Article 20 shall be reduced below that which
Landlord would otherwise be entitled to charge Tenant hereunder, then
Tenant shall pay the difference between such amounts to Landlord as
additional rent within thirty (30) days after being billed therefor by
Landlord, as compensation for the use of the Building's electrical
distribution system. If any tax shall be imposed on Landlord by any
federal, state or municipal authority with respect to electricity furnished
to Tenant, then Tenant's pro rata share of such taxes shall be reimbursed
by Tenant to Landlord as additional rent within thirty (30) days after
being billed therefor.
Section 20.07. If the Public Utility or any Legal Requirement shall
institute or require a change in the manner in which electricity is to be
furnished or paid for, and such change reasonably necessitates an
appropriate modification of this Article 20, Tenant shall execute and
deliver to Landlord an instrument which sets forth such modification;
provided, however, that in no event shall the Minimum Rent be reduced to an
amount below the amount thereof stated in Section 1.01 above. Tenant agrees
to fully and timely comply with all rules and regulations of the Public
Utility applicable to Tenant or the Demised Premises.
Section 20.08. In the event that, pursuant to any of the provisions of
this Article 20, any initial determinations, statements or estimates are
made by or on behalf of Landlord (whether or not such initial
determinations, statements or estimates are subject to dispute), Tenant
shall pay to Landlord the amount(s) set forth on such initial
determinations, statements or estimates, as the case may be, until
subsequent determinations, statements or estimates are rendered, at which
time the parties shall make adjustment for any deficiency owed by Tenant,
or any overage paid by Tenant.
Section 20.09. Notwithstanding any provisions of this Article 20 and
regardless of the manner of service of electricity to the Demised Premises
(whether by submetering or as described in Section 20.02E, but excluding a
situation in which Tenant shall be obtaining electricity directly from the
Public Utility pursuant to the provisions of Section 20.05 above), in no
event shall the cost to Tenant for electricity to the Demised Premises be
less than one hundred five (105%) percent of Landlord's Electricity Cost,
subject to LMEP benefits.
Section 20.10. Any payments due hereunder for less than a calendar
year at the commencement or end of the Term shall be equitably prorated.
Any delay or failure by Landlord to render any bills or statements under
the provisions of this Article 20 shall not prejudice Landlord's right
thereunder to render such bills or statements for prior or subsequent
periods. Any delay or failure by Landlord in making any request or demand
for any amount payable by Tenant pursuant to the provisions of this Article
20 shall not constitute a waiver of, or in any way diminish, the continuing
obligation of Tenant to make such payment. The obligations of Tenant with
respect to any payment or increase, and the obligations of Landlord with
respect to a refund of any overpayment, pursuant to the provisions of this
Article 20 shall survive for a period of three (3) years after the
expiration or sooner termination of the Term; provided Landlord shall have
sent Tenant within said three (3) year period a written notice (including
the basis for such payment) or bill or statement pursuant to the provisions
of this Article 20; and provided, further, however, that any action by
Landlord to enforce its rights to any payment due or owing pursuant to the
provisions of this Article 20 shall have been brought by Landlord no later
than six (6) years after the expiration or sooner termination of the Term.
Section 20.11. Tenant acknowledges receipt of advice from Landlord to
the effect that, prior to the date of this Lease, Landlord filed an
application to qualify the Building under the Industrial and Commercial
Incentive Program, City of New York Administrative Code, Title 11, Chapter
2, Part 4 (the "ICIP Program"). Landlord and Tenant further acknowledge
that in the event the Building qualifies under the ICIP Program, then due
to such qualification, the Building may also qualify under the Lower
Manhattan Energy Plan, Article 2-I of the General City Law of the City of
New York (the "LMEP") and, if Landlord has applied for, and successfully
qualifies the Building under the LMEP, then Landlord shall credit against
Tenant's obligation to pay Electricity Additional Rent (as defined in
Subsection 20.02C hereof) due under this Lease (whether the same are due
through a rent inclusion charge for electricity, or otherwise (as the case
may be)), the reduction in Landlord's Electricity Cost (as defined in
Subsection 20.02C hereof) realized by the Building under the LMEP to the
extent attributable to the Demised Premises. If the Building qualifies
under the LMEP as the date hereof, Landlord shall use diligent, good faith
efforts to remain qualified under the LMEP. In accordance with Article 2-I
of the General City Law of the City of New York, subsection 25-bb(c)(5),
Landlord shall set forth on all invoices for Tenant's bills from Landlord
for electricity (for which reductions thereof are by reason of the
applicability of the LMEP), substantially the following language:
"Tenant may be entitled to share a rebate which your Landlord has
received for charges for energy pursuant to the revitalization area
energy rebate program. The amount is separately stated and identified
in this bill."
ARTICLE 21
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BROKER
Section 21.01. Each party represents and warrants to the other that
such party has not employed, dealt with or negotiated with any broker in
connection with this Lease, and each party shall indemnify, protect, defend
and hold the other harmless from and against any and all liability, damage,
cost and expense (including reasonable attorneys' fees and disbursements)
arising out of a breach by such party of the foregoing representation and
warranty. The provisions of this Section 21.01 shall not apply to the
Designated Broker, if a Designated Broker is specified in Section 1.01.
Landlord agrees to pay the Designated Broker's commission, if any, in
accordance with the terms of separate agreements between Landlord and the
Designated Broker.
ARTICLE 22
----------
SUBORDINATION
Section 22.01.
-------------
A. This Lease and all of Tenant's rights hereunder, including
Tenant's rights under Section 27.01, are and shall be subject and
subordinate to (i) every Underlying Lease, the rights of the Overlandlord
or Overlandlords under each Underlying Lease, all mortgages heretofore or
hereafter placed on or affecting any Underlying Lease, alone or with other
property, and to all advances heretofore or hereafter made under any such
leasehold mortgage, and to all renewals, modifications, consolidations,
replacements, substitutions, spreaders, additions and extensions of any
such leasehold mortgage, and (ii) any condominium plan or declaration now
or hereafter affecting the Building, and any other instruments or rules and
regulations promulgated in connection therewith, and (iii) any Mortgage now
or hereafter affecting the real property of which the Demised Premises form
a part or any part or parts of such real property, or such real property
and other property, and to each advance made or hereafter to be made under
any such Mortgage and to all renewals, modifications, consolidations,
replacements, substitutions, spreaders, additions and extensions of any
such Underlying Lease or Leases and/or Mortgages. The subordination
provisions herein contained shall be self-operative and no further
instrument of subordination shall be required. Landlord reserves the right,
by written notice to Tenant from Landlord, to provide that the foregoing
provisions shall not apply to any or all Mortgages then being and/or
thereafter to be made. In confirmation of such subordination, Tenant shall
execute and deliver promptly any certificate that Landlord or its
successors in interest may reasonably request. Notwithstanding any
provision in this Lease or any separate agreement with Tenant, Tenant
covenants and agrees that Tenant shall not do any act, or refrain from
doing any act, if doing such act, or refraining from doing such act, would
constitute a default or breach of any Underlying Lease or Mortgage to which
this Lease is subordinate, and as to which Tenant has knowledge.
B. Without limiting the generality of the provisions of the
foregoing Subsection 22.01A, Tenant acknowledges receipt of advice from
Landlord to the effect that this Lease, and all rights of Tenant hereunder,
are and shall be subject and subordinate in all respects to the lease dated
as of July 15, 1955, between Webb & Knapp, Inc., as landlord, and 13039
Corporation, as tenant, as such lease has been amended, and as assigned by
mesne assignments to Landlord with respect to the interest of the tenant
thereunder, and to 405 Company, S.K. Realty Company and 715 Realty Company,
collectively, with respect to the interest of the landlord thereunder
(collectively, the "Ground Lessor"). Landlord warrants and represents that
(i) since October 27, 1993, the date that the landlord named herein (i.e.,
Broadpine Realty Holding Company, Inc.) acquired title to the Building by
foreclosure (with respect to which foreclosure a Notice of Entry of Order
was entered on April 11, 1994), the Ground Lessor has not executed and
delivered to any tenant in the Building a non-disturbance or other
recognition-type agreement for such tenant's benefit, (ii) the Ground Lease
is the only Underlying Lease affecting the Land and/or the Building on the
date hereof, (iii) there is no Mortgage affecting the Land and/or the
Building on the date hereof, and (iv) on the date hereof, Landlord has not
received any written notice of default and, to the best of Landlord's
knowledge, is not in default in the observance of any of its obligations as
tenant under the Ground Lease.
Section 22.02. This Lease may be conditionally assigned as collateral
security by Landlord to a Mortgagee, which collateral assignment may
provide that, without Mortgagee's prior written consent, the parties shall
not (i) pay or accept the rent or additional rent under the terms of this
Lease for more than one month in advance of its due date, or (ii) enter
into an agreement to amend or modify this Lease if there is an unexpired
term of more than one (1) year thereunder, or (iii) voluntarily surrender
the Demised Premises, terminate this Lease, or accelerate the Term without
cause, or (iv) authorize the Tenant to assign this Lease or sublet the
Demised Premises or any part thereof except in the manner as provided under
the terms of this Lease. Any agreement by Landlord to make, perform or
furnish any capital improvements or services not related to the possession
or use of the Demised Premises by Tenant, shall not be binding on any
Mortgagee in the event of foreclosure or in the event that a Mortgagee
enters upon the Demised Premises pursuant to any security instrument in
connection with the mortgage loan. Any Mortgagee and its successor shall
not be responsible for any improvements, covenants, contractual obligations
or services which Landlord has agreed to make, furnish or perform for
Tenant under the terms of this Lease which do not run with the Land, or for
the control, care or management of the Building or any waste committed on
the Building by any tenant, or for any dangerous or defective condition of
the Building resulting in loss or injury or death to any tenant, licensee
or stranger. No Mortgagee will be deemed to assume liability for any
security deposited by Tenant unless such Mortgagee accepts the transfer of
said security and assumes responsibility therefor.
Section 22.03. Tenant agrees that, unless a Mortgagee shall elect
otherwise in the case of a foreclosure of such Mortgage, or unless the
Overlandlord of an Underlying Lease to which this Lease is subordinate
shall elect otherwise in the case of a cancellation or a termination of
such Underlying Lease, neither the cancellation nor termination of any
Underlying Lease, nor any foreclosure of a Mortgage affecting the Land,
Building, an Underlying Lease or the Demised Premises, nor the institution
of any suit, action, summary or other proceeding against Landlord herein or
any successor landlord, shall by operation of law or otherwise result in
cancellation or termination of this Lease or the obligations of Tenant
hereunder, and upon the request of the Overlandlord of such Underlying
Lease, or the holder of such Mortgage, or the purchaser at a sale in
foreclosure of such Mortgage, or other person who shall succeed to the
interests of Landlord (which such Overlandlord, holder, purchaser or other
person is hereafter in this paragraph referred to as "such successor in
interest"), Tenant covenants and agrees to attorn to such successor in
interest and recognize such successor in interest as its landlord under
this Lease. Tenant agrees to execute an instrument in writing reasonably
satisfactory to such successor in interest whereby Tenant attorns to such
successor in interest. Tenant further waives the provisions of any statute
or rule of law now or hereafter in effect which may give or purport to give
Tenant any right of election to terminate this Lease or to surrender
possession of the Demised Premises in the event any Underlying Lease
terminates or any such mortgage is foreclosed or any such proceeding is
brought by any Overlandlord or the holder of any such mortgage.
Section 22.04. In the event of the occurrence of any act or omission
by Landlord which would give Tenant the right to terminate this Lease or
claim a partial or total eviction, or make any claim against Landlord for
the payment of money, Tenant will not exercise such right until Tenant has
given written notice of such occurrence to (i) Landlord and (ii) each
Mortgagee and the Overlandlord of any Underlying Lease, as to whom, and to
the last address to which Tenant has been instructed to give such notice,
and a reasonable period for remedying such act or omission shall have
elapsed following the giving of such notices, during which such parties or
any of them with reasonable diligence following the giving of such notice,
have not commenced and continued to remedy such act or omission or to cause
the same to be remedied. Nothing herein contained shall be deemed to create
any rights in Tenant not specifically granted in this Lease or under any
applicable provision of law, nor to obligate any such Mortgagee or
Overlandlord to remedy any such act or omission.
Section 22.05. If a Mortgagee or prospective mortgagee shall request
modifications to this Lease, Tenant shall not unreasonably withhold, delay
or defer Tenant's consent thereto, provided that such modifications shall
not increase Tenant's monetary obligations hereunder or increase Tenant's
non-monetary obligations hereunder by more than a de minimis amount or
adversely affect the leasehold interest hereby created by more than a de
minimis amount. In no event shall a requirement that the consent of any
such Mortgagee or prospective mortgagee be given for any modification of
this Lease or for any assignment or sublease, be deemed to materially
adversely affect the leasehold interest hereby created.
Section 22.06 Notwithstanding anything to the contrary contained in
this Lease, Landlord hereby agrees to use reasonable efforts to obtain from
a Mortgagee a non-disturbance agreement in favor of Tenant on such
Mortgagee's standard form.
ARTICLE 23
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ESTOPPEL CERTIFICATE
Section 23.01. Tenant agrees, at any time, and from time to time,
within twenty (20) days after request by Landlord, to execute, acknowledge
and deliver to Landlord, a statement in writing addressed to Landlord
and/or to such other party(ies) as Landlord may designate: (i) certifying
that this Lease is unmodified and in full force and effect (or, if there
have been modifications, that the same is in full force and effect as
modified and stating the modifications), (ii) stating the dates to which
the Minimum Rent, additional rent and other charges have been paid, (iii)
stating whether or not, to the best knowledge of the signer of such
certificate, there exists any default by either party in the performance of
any covenant, agreement, term, provision or condition contained in this
Lease, and, if so, specifying each such default of which the signer may
have knowledge, and (iv) setting forth such other information as Landlord
may reasonably request concerning this Lease, it being intended that any
such statement delivered pursuant hereto may be relied upon by Landlord or
a purchaser of Landlord's interest and by any mortgagee, or prospective
mortgagee, of any mortgage affecting the Building or the Land, or both, and
by any Overlandlord or prospective Overlandlord under any Underlying Lease
affecting the Land or Building, or both, and by any mortgagee or
prospective mortgagee of any Underlying Lease, it being understood that
Tenant shall not be required to make any investigation of any matter beyond
Tenant's own books and records.
Section 23.02. Landlord agrees, in connection with any proposed
assignment of this Lease or subletting of the Demised Premises by Tenant
(except to an unaffiliated Successor Corporation), or in connection with
any offering materials to be delivered by Tenant to the Securities Exchange
Commission, within thirty (30) days after request by Tenant, to execute,
acknowledge, and deliver to Tenant, a statement in writing addressed to
Tenant and/or any other party(ies) as Tenant may designate: (i) certifying
that this Lease is unmodified and in full force and effect (or, if there
have been modifications, that the same is in full force and effect as
modified and stating the modifications), (ii) stating, to the best of
Landlord (but without having made any independent investigation), the dates
to which the Minimum Rent and Recurring Additional Rent have been paid, and
(iii) stating whether, to the best knowledge of Landlord (but without
having made any independent investigation), Tenant is in default in the
performance of any covenant, agreement, term, provision, or condition
contained in this Lease, and, if Tenant is in default, identifying all such
defaults; provided, however, that Landlord shall not be required to provide
such a statement to Tenant more than twice during any twelve (12) month
period.
ARTICLE 24
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LEGAL PROCEEDINGS
Section 24.01. If Tenant or Landlord shall bring any action or suit
for any relief against the other, declaratory or otherwise, arising out of
this Lease or Tenant's occupancy of the Demised Premises, the parties
hereto agree to and hereby waive any right to a trial by jury.
Section 24.02. This Lease shall be governed in all respects by the
laws of the State of New York. Tenant hereby specifically consents to
jurisdiction in the State of New York in any action or proceeding arising
out of this Lease and/or the use and occupation of the Demised Premises. If
Tenant at any time during the Term shall not be a New York partnership or a
New York corporation or a foreign corporation qualified to do business in
New York State, Tenant shall designate, in writing, an agent located in New
York County (together with such agent's address) for service under the laws
of the State of New York for the entry of a personal judgment against
Tenant. Tenant, by notice to Landlord, shall have the right to change
Tenant's designation of such agent, provided that at all times there shall
be an agent in New York County for such service. In the event of any
revocation by Tenant of such agency, such revocation shall be void and have
no force or effect unless and until a new agent shall have been designated
for service and Tenant shall have notified Landlord thereof (together with
such new agent's address). If any such agency designation shall require a
filing in the office of the Clerk of the County of New York, the same shall
be promptly accomplished by Tenant, at Tenant's expense, and a certified
copy thereof shall thereupon be transmitted by Tenant to Landlord.
ARTICLE 25
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SURRENDER
Section 25.01. Tenant shall, at the expiration or sooner termination
of the Term (either, as applicable, being referred to herein as the
"Surrender Date"), quit and surrender to Landlord the Demised Premises,
broom clean and in the condition required under this Lease, reasonable wear
and tear and Repairs that are the obligation of Landlord pursuant to the
terms of this Lease excepted, and shall surrender all keys for the Demised
Premises to Landlord at the place then fixed for the payment of rent, and
shall inform Landlord of all combinations of locks, safes and vaults, if
any, located (and permitted by Landlord to remain) in the Demised Premises.
Except as otherwise expressly provided elsewhere in this Lease, Tenant
shall, on the Surrender Date, remove all of Tenant's property from the
Demised Premises and shall immediately repair any damage to the Demised
Premises caused by the installation and/or removal of such property. Any or
all of such property not so removed shall, at Landlord's option, become the
exclusive property of Landlord or be disposed of by Landlord, at Tenant's
cost and expense, without further notice to or demand upon Tenant, and
without any liability to Tenant, in connection therewith.
Section 25.02.
-------------
A. If the Demised Premises (or any portion thereof) shall not be
surrendered as and when aforesaid, Tenant shall pay to Landlord as use and
occupancy for each month or fraction thereof during which Tenant continues
to occupy the Demised Premises (or any portion thereof) from and after the
Surrender Date (the "Continued Occupancy Period") an amount of money (the
"Occupancy Payment") equal to one hundred fifty (150%) percent of one
twelfth (1/12) of the Minimum Rent and additional rent payable by Tenant
during the immediately preceding twelve (12) months. Notwithstanding
anything to the contrary contained in this Section 25.02A, in the event
that Tenant shall be unable to surrender the Demised Premises on the
Surrender Date for any reason outside of Tenant's reasonable control (an
"Excusable Surrender Delay Event") and provided Tenant is not then in
default under this Lease (other than by reason of such failure to vacate)
and has given Landlord notice specifying the nature of the Excusable
Surrender Delay Event no less than thirty (30) days prior to the Surrender
Date, then the Occupancy Payment for the thirty (30) day period following
the Surrender Date shall be one twelfth (1/12) of the Minimum Rent and
additional rent payable by Tenant during the immediately preceding twelve
(12) months. Tenant shall make the Occupancy Payment, without notice or
previous demand therefor, on the first day of each and every month during
the Continued Occupancy Period.
B. In addition to making all required Occupancy Payments, Tenant
shall, in the event of Tenant's failure to surrender the Demised Premises
on the Surrender Date as and in the manner aforesaid, also indemnify and
hold Landlord harmless from and against any and all cost, expense, damage,
claim, loss or liability resulting from any delay or failure by Tenant in
so surrendering the Demised Premises, including any consequential damages
suffered by Landlord and any claims made by any succeeding occupant founded
on such delay or failure, and any and all reasonable attorneys' fees,
disbursements and court costs incurred by Landlord in connection with any
of the foregoing.
C. The receipt and acceptance by Landlord of all or any portion
of the Occupancy Payment shall not be deemed a waiver or acceptance by
Landlord of Tenant's breach of Tenant's covenants and agreements under this
Article 25, or a waiver by Landlord of Landlord's right to institute any
summary holdover proceedings against Tenant, or a waiver by Landlord of
Landlord's rights to enforce any of Landlord's rights, or pursue any of
Landlord's remedies against Tenant in such event as provided for in this
Lease or under law.
Section 25.03. It is expressly understood and agreed that there can be
no extension of the Term unless said extension is reduced to writing and
agreed to by Landlord. No verbal statement or unsigned writing shall be
deemed to extend the Term, and Tenant hereby agrees that any improvements
Tenant shall make to the Demised Premises in reliance upon any extension of
the Term given verbally or by an unsigned writing shall be at Tenant's
peril.
Section 25.04. If the last day of the Term shall fall on a Saturday,
Sunday or legal holiday, the term of this Lease shall expire on the
business day immediately following such date.
Section 25.05. Tenant expressly waives, for itself and for any person
claiming by, through or under Tenant, any rights which Tenant or any such
persons may have under the provisions of Section 2201 of the New York Civil
Practice Law and Rules, and of any successor law of like import then in
force, in connection with any summary holdover proceedings which Landlord
may institute to enforce the provisions of this Article 25.
Section 25.06. Each and every one of Tenant's obligations set forth in
this Article 25 (including the indemnity) shall survive the expiration or
other termination of the Term.
ARTICLE 26
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RULES AND REGULATIONS
Section 26.01. Tenant, and all Persons Within Tenant's Control, shall
observe and comply with: (i) all of the rules and regulations set forth in
Exhibit "F" annexed hereto and made a part hereof, and (ii) such additional
rules and regulations as Landlord hereafter at any time or from time to
time may reasonably make and may communicate in writing to Tenant, which,
in the reasonable judgment of Landlord, shall be necessary or desirable for
the reputation, safety, care or appearance of the Building and the Building
Systems, or the preservation of good order therein, or the operation or
maintenance of the Building and Building Systems, or the comfort of tenants
or others in the Building and which do not materially increase Tenant's
obligations or materially reduce Tenant's right hereunder; provided,
however, that in the case of any conflict between the provisions of this
Lease and any such rules or regulations, the provisions of this Lease shall
control, and provided further that nothing contained in this Lease shall be
construed to impose upon Landlord any duty or obligation to enforce the
rules and regulations or the terms, covenants or conditions in any other
lease as against any other tenant, and provided further that Landlord shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors, invitees, subtenants or licensees.
In the event that Tenant shall dispute the reasonableness of any additional
rule or regulation hereafter made or adopted by Landlord or Landlord's
agents, the parties hereto agree to submit the question of the
reasonableness of such rule or regulation for decision to the AAA, whose
determination shall be final and conclusive upon the parties hereto. The
right to dispute the reasonableness of any additional rule or regulation
upon Tenant's part shall be deemed waived unless the same shall be asserted
by service of a notice in writing upon Landlord within thirty (30) days
after the giving of notice of the making of the rule or regulation to
Tenant. Notwithstanding the foregoing, Landlord agrees not to enforce the
rules and regulations against Tenant in a discriminatory manner.
ARTICLE 27
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PERSONS BOUND
Section 27.01. The covenants, agreements, terms, provisions and
conditions of this Lease shall bind and inure to the benefit of the
respective heirs, distributees, executors, administrators, successors,
assigns and legal representatives of the parties hereto with the same
effect as if mentioned in each instance where a party hereto is named or
referred to, except that no violation of the provisions of Article 10 shall
operate to vest any rights in any successor, assignee or legal
representative of Tenant, and that the provisions of this Article 27 shall
not be construed as modifying the conditions of limitation contained in
Articles 14 and 15. The term "Landlord" as used in this Lease shall mean
the Landlord at the particular time in question, and it is agreed that the
covenants and obligations of Landlord under this Lease shall not be binding
upon Landlord herein named or any subsequent landlord with respect to any
period subsequent to the transfer of its interest under this Lease by
operation of law or otherwise. In the event of any such transfer, the
transferee shall be deemed to have assumed (subject to this Article 27) the
covenants and obligations of Landlord under this Lease, and Tenant agrees
to look solely to the transferee for the performance of the obligations of
Landlord hereunder, but only with respect to the period beginning with such
transfer and ending with a subsequent transfer of such interest. A lease of
Landlord's interest shall be deemed a transfer within the meaning of this
Article 27.
Section 27.02. Notwithstanding anything to the contrary provided in
this Lease, Tenant agrees that there shall be no personal liability on the
part of Landlord or Landlord's principals, partners, members, shareholders,
directors, officers, employees or agents, arising out of any default by
Landlord under this Lease, and that Tenant (and any person claiming by,
through or under Tenant) shall look solely to the equity interest of
Landlord in and to the Building or the leasehold estate of Landlord, and
the proceeds of any sale or other disposition thereof or proceeds from
insurance or condemnation awards, for the enforcement and satisfaction of
any defaults by Landlord hereunder, and that Tenant shall not enforce any
judgment or other judicial decree requiring the payment of money by
Landlord, against any other property or assets of Landlord, and at no time
shall any other property or assets of Landlord, or Landlord's principals,
partners, members, shareholders, directors or officers, be subject to levy,
execution, attachment or other enforcement procedure for the satisfaction
of Tenant's (or such person's) remedies under or with respect to this
Lease, the relationship of Landlord and Tenant hereunder or Tenant's use or
occupancy of the Demised Premises; such exculpation of personal liability
to be absolute and without any exception.
ARTICLE 28
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NOTICES
Section 28.01. In order for the same to be effective, each and every
notice, request or demand permitted or required to be given by the terms
and provisions of this Lease, or by any Legal Requirement, either by
Landlord to Tenant or by Tenant to Landlord (any of the foregoing being
referred to in this Article 28 as a "Notice"), shall be given in writing,
in the manner provided in this Section 28.01, unless expressly provided
otherwise elsewhere in this Lease. In the case of Notices given by Landlord
to Tenant, any such Notice shall be deemed to have been served and given by
Landlord and received by Tenant, on the third business day following the
date on which Landlord shall have deposited such Notice by registered or
certified mail, return receipt requested, enclosed in a securely closed
postpaid wrapper, in a United States general or branch post office facility
("Post Office"), addressed to Tenant at the Demised Premises (or before
Tenant has moved its offices to the Demised Premises, addressed to Tenant
at its address as stated on the first page of this Lease), Attention: Mr.
Frank Joyce, Chief Operating Officer, with a copy to Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York, 10004-1980,
Attention: Valerie Ford Jacob, Esq. In the case of Notices given by Tenant
to Landlord, any such Notice shall be deemed to have been served and given
by Tenant and received by Landlord on the third business day following the
date on which Tenant shall have deposited such Notice (and any required
copies thereof) by registered or certified mail, return receipt requested,
enclosed in securely closed postpaid wrapper in a Post Office addressed to
Landlord as follows: Broadpine Realty Holding Company, Inc., c/o J.P.
Morgan Investment Management Inc., 522 Fifth Avenue, New York, New York
10036, Attention: Ms. Elizabeth Propp, with a copy to Silverstein
Properties, Inc., 120 Broadway, New York, New York 10271, Attention: Ms.
Catherine T. Giliberti and with an additional copy to: Stroock & Stroock &
Lavan LLP, 180 Maiden Lane, New York, New York 10038, Attention: Brian
Diamond, Esq., and with copies thereof mailed as aforesaid to parties
designated in accordance with Section 22.04. Notices may also be given by
air courier or personal delivery with receipted delivery, each effective
upon receipt (or refusal to receive). Either party may, by notice as
aforesaid, designate a different address or addresses for Notices.
Section 28.02. Notices may be given on behalf of Landlord by the
managing agent for the Building, which currently is Silverstein Properties,
Inc. Notices may also be given on behalf of Landlord and Tenant by their
respective attorneys.
ARTICLE 29
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PARTNERSHIP TENANT
Section 29.01. If Tenant is a partnership (or is comprised of two (2)
or more persons, individually and as co-partners of a partnership) or if
Tenant's interest in this Lease shall be assigned to a partnership (or to
two (2) or more persons, individually and as co-partners of a partnership)
pursuant to Article 10 (any such partnership and such persons being
referred to in this Article as "Partnership Tenant"), the following
provisions of this Section 29.01 shall apply to such Partnership Tenant:
(i) the liability of each of the parties comprising Partnership Tenant
(other than limited partners of the initial Tenant entity if such entity
shall be a limited partnership) shall be joint and several, (ii) each of
the parties comprising Partnership Tenant hereby consents in advance to,
and agrees to be bound by, any written instrument which may hereafter be
executed changing, modifying or discharging this Lease, in whole or in
part, or surrendering all or any part of the Demised Premises to Landlord,
and by any notices, demands, requests or other communications which may
hereafter be given by Partnership Tenant or by any of the parties
comprising Partnership Tenant, (iii) any bills, statements, notices,
demands, requests or other communications given or rendered to Partnership
Tenant or to any of the parties comprising Partnership Tenant (other than
limited partners of the initial Tenant entity if such entity shall be a
limited partnership) shall be binding upon Partnership Tenant and all such
parties, (iv) if Partnership Tenant shall admit new partners, all of such
new partners shall, by their admission to Partnership Tenant, be deemed to
have assumed performance of all of the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed (it being
understood, however, that, in the case of a limited partnership, such new
limited partners shall not be deemed to have personally assumed such
performance), (v) Partnership Tenant shall give prompt notice to Landlord
of the admission of any such new partners (other than limited partners),
and, upon demand of Landlord, shall cause each such new partner (other than
limited partners) to execute and deliver to Landlord an agreement in form
satisfactory to Landlord, wherein each such new partner shall assume
performance of all of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed (but neither Landlord's failure
to request any such agreement nor the failure of any such new partner to
execute or deliver any such agreement to Landlord shall vitiate the
provisions of clause (iv) of this Section 29.01), and (vi) on each
anniversary of the Commencement Date, Partnership Tenant shall deliver to
Landlord a list of the names of all partners and their current residential
addresses.
Section 29.02. If any partner in Tenant is or shall be a professional
corporation, Tenant agrees to cause such professional corporation and each
individual shareholder thereof to execute such guaranties and other
instruments, agreements or documents as Landlord may reasonably request
confirming that such individual shareholder shall have the same obligations
and liability under this Lease as such shareholder would have had if he,
and not such professional corporation, were a partner in Tenant.
Section 29.03. Tenant and each of the partners/shareholders of Tenant
hereby waive any requirements of law that may require that Landlord first
look to the assets of Tenant for recovery of any monies due hereunder, it
being the intention of the parties hereto that Landlord may, at Landlord's
election, proceed against the assets of Tenant and/or the assets of the
individual partners/shareholders of Tenant, whether simultaneously, or in
such order of priority as Landlord may determine in Landlord's sole
discretion. The provisions of this Section 29.03 are not intended to mean
that Landlord shall have limited or waived its rights to any other
available remedies hereunder or under applicable law as to Tenant,
including the right to look to the assets of Tenant for recovery of any
monies due hereunder.
Section 29.04. The partners/shareholders of Tenant hereby consent and
submit to the jurisdiction of any court of record of New York State located
in New York County, or of the United States District Court for the Southern
District of New York, and agree that service of process in any action or
proceeding brought by Landlord may be made upon any or all of the
partners/shareholders of Tenant by mailing a copy of the summons to such
partner(s)/shareholder(s) either at their respective addresses or at the
Demised Premises, by registered or certified mail, return receipt
requested. Notwithstanding the foregoing, the residence of any
partner/shareholder of Tenant shall not be a basis for a choice of venue or
for a motion by a partner/shareholder of Tenant for transfer of venue or
forum non conveniens pursuant to any rule of common law and/or any
applicable state of federal provision or statute, and each
partner/shareholder of Tenant and Tenant hereby waives the right to choose
venue or to move for transfer of venue or forum non conveniens on the
grounds that an individual partner/shareholder of the Tenant resides in a
particular jurisdiction.
ARTICLE 30
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NO WAIVER; ENTIRE AGREEMENT
Section 30.01. The failure of the Landlord to enforce Landlord's
rights for violation of, or to insist upon the strict performance of any
covenant, agreement, term, provision or condition of this Lease, or any of
the rules and regulations, shall not constitute a waiver thereof, and
Landlord shall have all remedies provided herein and by applicable law with
respect to any subsequent act which would have originally constituted a
violation. The receipt by Landlord of Minimum Rent and/or additional rent
with knowledge of the breach of any covenant, agreement, term, provision or
condition of this Lease shall not be deemed a waiver of such breach. No
provision of this Lease shall be deemed to have been waived by Landlord,
unless such waiver be in writing signed by Landlord. Tenant hereby
expressly waives any right that Tenant might otherwise have to raise or
assert either the aforesaid failure of Landlord to enforce rights, seek
redress or insist upon strict performance, or the aforesaid receipt by
Landlord of Minimum Rent and/or additional rent, as a basis for any defense
or counterclaim in any legal, equitable or other proceeding in which
Landlord shall seek to enforce any rights, covenants or conditions under
this Lease. The remedies provided in this Lease shall be cumulative and
shall not in any way abridge, modify or preclude any other rights or
remedies to which Landlord may be entitled under this Lease, at law or in
equity. Without limiting the generality of the foregoing, Tenant expressly
agrees that, upon the occurrence of an Event of Default, Landlord shall be
entitled to exercise all of the rights set forth in Article 15 above
(including the right to terminate this Lease), notwithstanding that this
Lease provides that Landlord may cure the default or otherwise perform the
obligation of Tenant which gave rise to such Event of Default, and
regardless of whether Landlord shall have effected such cure or performed
such obligation. The receipt and retention by Landlord of Minimum Rent or
additional rent from any person other than Tenant shall not be deemed a
waiver by Landlord of any breach by Tenant or any covenant, agreement,
term, provision or condition herein contained, or the acceptance of such
other person as a tenant, or a release of Tenant from the further
performance of the covenants, agreements, terms, provisions and conditions
herein contained.
Section 30.02. This Lease, with the schedules, riders and exhibits, if
any, annexed hereto, contains the entire agreement between Landlord and
Tenant, and any agreement heretofore made with respect to the subject
matter hereof shall be deemed merged herein. Any agreement hereafter made
between Landlord and Tenant shall be ineffective to change, modify, waive,
release, discharge, terminate or effect a surrender or abandonment of this
Lease, in whole or in part, unless such agreement is in writing and signed
by the party against whom enforcement is sought. All of the schedules,
riders and exhibits, if any, annexed hereto are incorporated herein and
made a part hereof as though fully set forth herein. If Tenant shall have
any right to an extension or renewal of the Term, or any right to lease
other space from Landlord, Landlord's exercise of Landlord's right to
terminate this Lease shall operate, ipso facto, to terminate such renewal,
extension or other right, whether or not theretofore exercised by Tenant.
Any option on the part of Tenant herein contained for an extension or
renewal hereof shall not be deemed to give Tenant any option for a further
extension beyond the first renewal or extended term. No option or right
granted to Tenant under this Lease to terminate, extend, or make any other
election, shall be exercisable or valid during such time as Tenant shall be
in default in any of its monetary obligations or in default (after notice
and the expiration of any applicable cure period provided in this Lease)
with respect to any of Tenant's material obligations under this Lease.
Section 30.03. No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed to constitute an eviction by Landlord, or
be deemed an acceptance of a surrender of the Demised Premises, and no
agreement to accept such surrender shall be valid, unless in writing signed
by Landlord. No employee of Landlord or of Landlord's agents shall have any
power to accept the keys of the Demised Premises prior to the termination
of this Lease. The delivery of keys to any employee of Landlord or of
Landlord's agents shall not operate as a termination of this Lease or a
surrender of the Demised Premises. In the event that Tenant at any time
shall desire to have Landlord sublet the Demised Premises for Tenant's
account, Landlord or Landlord's agents are authorized to receive said keys
for such purposes without releasing Tenant from any of Tenant's obligations
under this Lease, and Tenant hereby relieves Landlord of any liability for
loss of or damage to any of Tenant's property in connection with such
subletting.
ARTICLE 31
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MISCELLANEOUS
Section 31.01. Tenant represents that Tenant has inspected the Demised
Premises, and (except as may be otherwise expressly set forth elsewhere in
this Lease) agrees to take same in its existing condition "as is" and
"where is" at the commencement of the term of this Lease, subject, however,
to Landlord's obligation to substantially complete Landlord's Work, in
accordance with Article 2 of this Lease. The taking of possession of the
Demised Premises by Tenant shall be deemed conclusive evidence that Tenant
accepts the same "as is" and "where is", and that the Demised Premises and
the Building are in good and satisfactory condition, but nothing contained
in this Section 31.01 shall be construed as a waiver by Tenant of
Landlord's obligations to perform such Repairs as Landlord shall otherwise
be required to perform pursuant to the provisions of this Lease, or to
complete such incomplete portions of any work as Landlord may be required
to complete pursuant to Article 2 above. Tenant agrees that neither
Landlord, nor any broker, agent, employee or representative of Landlord nor
any other party, has made, and Tenant does not rely on, any
representations, warranties or promises with respect to the Building, the
Land, the Demised Premises or this Lease, except as herein expressly set
forth, and no rights, easements or licenses are acquired by Tenant by
implication or otherwise except as expressly set forth in the provisions of
this Lease. Landlord makes no representation as to the design,
construction, development or use of the Land or Building, except as may be
expressly set forth in this Lease.
Section 31.02. The Table of Contents and Article headings of this
Lease are included for convenience only, and shall not limit or define the
meaning or content hereof. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as
the identity of the person or persons may require. The terms "herein,"
"hereof" and "hereunder," and words of similar import, shall be construed
to refer to this Lease as a whole, and not to any particular Article or
Section, unless expressly so stated. The term "and/or", when applied to two
or more matters or things, shall be construed to apply to any one or more
or all thereof as the circumstances warrant at the time in question. The
term "person" shall mean any natural person or persons, a partnership, a
corporation, and any other form of business or legal association or entity,
unless expressly otherwise stated. An "affiliate" of Tenant shall mean any
person which controls or is controlled by, or is under common control with,
Tenant, with the word "control" (and, correspondingly, "controlled by" and
"under common control with"), as used with respect to any person, meaning
the possession of the power to direct or cause the direction of the
management and policies of such person. The rule of "ejusdem generis" shall
not apply in or to the construction of any term of this Lease.
Section 31.03. If the term "Tenant", as used in this Lease, refers or
shall refer to more than one person, then, as used in this Lease, said term
shall be deemed to include all of such persons or any one of them. If any
of the obligations of Tenant under this Lease is or shall be guaranteed,
the term "Tenant" as used in Article 14 shall be deemed to mean the Tenant
and the guarantor, or either of them. If this Lease shall have been
assigned, then for purposes of Article 14, the term "Tenant" shall be
deemed to mean either assignor or assignee. The term "Tenant" shall mean
the Tenant herein named or any assignee or other successor in interest
(immediate or remote) of the Tenant herein named, which at the time in
question is the owner of the Tenant's estate and interest granted by this
Lease; but the foregoing provisions of this Section 31.03 shall not be
construed to permit any assignment of this Lease or to relieve the Tenant
herein named or any assignee or other successor in interest (whether
immediate or remote) of the Tenant herein named from the full and prompt
payment, performance and observance of each and every one of the covenants,
obligations and conditions to be paid, performed and observed by Tenant
under this Lease.
Section 31.04. If any portion of the Building shall be sold or
transferred by Landlord in a transaction in the nature of a condominium,
Landlord may, by notice to Tenant, elect to increase Tenant's Proportionate
Share under this Lease by dividing the prior Tenant's Proportionate Share
by the percentage that the assessed valuation of the tax lot which includes
the Demised Premises for the first year of changed ownership bears to the
total of the assessed valuations of all new tax lots which comprised the
single tax lot which included the Demised Premises during the preceding
Year, and base period amounts shall be reduced by multiplying the amount
thereof theretofore in effect by the same percentage, and affected
computations under Subsection 19.03A shall be apportioned, but in no event
shall Tenant's Operating Expense Payment or Tax Payment following such sale
or transfer exceed the amount that such Operating Expense Payment or Tax
Payment would have been had the Building remained as a single unit and
Tenant's Proportionate Share not been recalculated .
Section 31.05. Landlord and Tenant and any subtenant under this Lease,
hereby expressly consent to the jurisdiction of the Civil Court of the City
of New York and the Supreme Court of the State of New York with respect to
any action or proceeding between Landlord and Tenant or such party with
respect to this Lease or any rights or obligations of either party pursuant
to this Lease, and each of such subtenant, Landlord and Tenant agrees that
venue shall lie in New York County. Tenant and any subtenant further waive
any and all rights to commence any such action or proceeding against
Landlord before any other court.
Section 31.06. The submission of this Lease to Tenant shall not be
construed as an offer, nor shall Tenant have any rights with respect
thereto or the Demised Premises, unless and until Landlord and Tenant shall
each have executed a counterpart of this Lease and delivered the same to
the other. Until such execution and delivery, any action taken or expense
incurred by Tenant in connection with this Lease or the Demised Premises
shall be solely at Tenant's own risk and account.
Section 31.07. Neither this Lease nor any memorandum thereof shall be
recorded.
Section 31.08. This Lease shall be governed exclusively by (i) the
provisions hereof, without the aid of any canon, custom or rule of law
requiring or suggesting construction against the party drafting or causing
the drafting of the provision in question, and (ii) the internal laws of
the State of New York as the same may from time to time exist, without
giving effect to the principles of conflicts of laws.
Section 31.09. There shall be no merger of this Lease, or the
leasehold estate created by this Lease, with any other estate or interest
in the Demised Premises, or any part thereof, by reason of the fact that
the same person may acquire or own or hold, directly or indirectly, (i)
this Lease or the leasehold estate created by this Lease, or any interest
in this Lease or in any such leasehold estate, and (ii) any such other
estate or interest in the Demised Premises or any part thereof; and no such
merger shall occur unless and until all persons having an interest
(including a security interest) in (a) this Lease or the leasehold estate
created by this Lease and (b) any such other estate or interest in the
Demised Premises, or any part thereof, shall join in a written instrument
effecting such merger and shall duly record the same.
Section 31.10. If Tenant is a corporation, each person executing this
Lease on behalf of Tenant hereby covenants, represents and warrants that
Tenant is a duly incorporated or duly qualified (if foreign) corporation
and is authorized to do business in the State of New York (a copy of
evidence thereof to be supplied to Landlord upon request); and that each
person executing this Lease on behalf of Tenant is an officer of Tenant,
and that he is duly authorized to execute, acknowledge and deliver this
Lease to Landlord (a copy of a resolution to that effect to be supplied to
Landlord upon request).
Section 31.11. The terms "Landlord shall have no liability to Tenant",
or "the same shall be without liability to Landlord", or "without incurring
any liability to Tenant therefor", or words of similar import, shall mean
that Tenant shall not be entitled to terminate this Lease, or to claim
actual or constructive eviction (partial or total), or to receive any
abatement or diminution of rent, or to be relieved in any manner of any of
Tenant's other obligations hereunder, or to be compensated for loss or
injury suffered, or to enforce any other right or kind of liability
whatsoever against Landlord under or with respect to this Lease or with
respect to Tenant's use or occupancy of the Demised Premises.
Section 31.12. If, under the terms of this Lease, Tenant shall be
obligated to pay to Landlord any amount (other than Minimum Rent), and no
payment period therefor is specified, Tenant shall pay to Landlord the
amount due within thirty (30) days after being billed therefor.
Section 31.13. Except as otherwise expressly provided herein, all
bills, invoices or statements rendered to Tenant pursuant to the terms of
this Lease shall be deemed binding and conclusive if, within ninety (90)
days of receipt of the same, Tenant fails to notify Landlord, in writing,
of Tenant's intention to dispute such bill, invoice or statement.
Section 31.14. Time shall be of the essence with respect to the
exercise of any option granted to Tenant pursuant to this Lease.
Section 31.15. Notwithstanding anything to the contrary contained in
this Lease, during the continuance of any default by Tenant (after notice
and the expiration of any applicable cure period provided in this Lease)
with respect to any of Tenant's obligations under this Lease, Tenant shall
not be entitled to exercise any rights or options or to receive any funds
or proceeds being held by Landlord under or pursuant to this Lease.
Section 31.16. If any sales or other tax shall be due or payable with
respect to any cleaning or other service which Tenant obtains or contracts
for directly from any third party or parties, Tenant shall file any
required tax returns and shall pay any such tax, and Tenant shall indemnify
and hold Landlord harmless from and against any loss, damage or liability
suffered or incurred by Landlord by reason thereof.
Section 31.17. Tenant acknowledges that Tenant has no rights to any
development rights, "air rights" or comparable rights appurtenant to the
Land and the Building, and consents, without further consideration, to any
utilization of such rights by Landlord, and agrees to promptly execute and
deliver any instruments which may be requested by Landlord, including
instruments merging zoning lots, evidencing such acknowledgment and
consent. The provisions of this Section 31.17 shall be deemed to be and
shall be construed as an express waiver by Tenant of any interest Tenant
may have as a "party in interest" (as such quoted term is defined under the
definition of "Zoning Lot" in Section 12-10 of the Zoning Resolution of the
City of New York) in the Land and/or the Building.
Section 31.18. This Lease shall not be deemed or construed to create
or establish any relationship of partnership or joint venture or similar
relationship or arrangement between Landlord or Tenant.
Section 31.19. The terms "actual" and "reasonable" when referring to
costs or expenses in connection with work or services performed shall be
deemed to include all amounts actually incurred and payable by a party
which shall be attributable to any requirements or regulations prescribed
by any labor unions.
ARTICLE 32
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INABILITY TO PERFORM; SEVERABILITY
Section 32.01. This Lease and the obligation of Tenant to pay Minimum
Rent and additional rent hereunder, and to perform and comply with all of
the other covenants and agreements hereunder on the part of Tenant to be
performed or complied with, shall in no way be affected, impaired or
excused because of Landlord's delay or failure to perform or comply with
any of the covenants and agreements hereunder on the part of Landlord to be
performed or complied with, or to furnish any service or facility, for
reasons beyond the reasonable control of Landlord, including strikes,
lock-outs or labor problems, governmental preemption, or by reason of any
Legal Requirements, or by reason of the conditions of supply and demand
which have been or shall be affected by war or other emergency or general
market conditions or otherwise.
Section 32.02. If any provision of this Lease or the application
thereof to any person or circumstance shall be determined by a court of
competent jurisdiction to be invalid or unenforceable, the remaining
provisions of this Lease or the application of such provision to persons or
circumstances other than those to which it is held invalid or unenforceable
shall not be affected thereby, and shall be valid and enforceable to the
fullest extent permitted by law.
Section 32.03. Each covenant, agreement, obligation and/or other
provision of this Lease on Tenant's part to be performed shall be deemed
and construed as a separate and independent covenant of Tenant, and not
dependent on any other provision of this Lease.
ARTICLE 33
----------
SECURITY
Section 33.01. Upon the execution of this Lease, Tenant shall deliver
to Landlord the "Letter of Credit" (as defined in Section 33.02 below), in
an amount equal to the Security Deposit Amount, as security for the
faithful performance and observance by Tenant of all of the covenants,
agreements, terms, provisions and conditions of this Lease. Tenant agrees
that, if Tenant shall default (after notice and the expiration of any
applicable cure period provided in this Lease) in respect of any of the
covenants, agreements, terms, provisions and conditions of this Lease,
including the payment of the Minimum Rent and additional rent, Landlord
may, at Landlord's option (unless Tenant has cured such default prior to
Landlord's drawing and Landlord shall have received satisfactory evidence
thereof) draw upon the entire Letter of Credit (or a portion thereof) and
thereafter use, apply or retain the whole or any part of the cash security
then being held by Landlord by reason of Landlord's having drawn upon the
Letter of Credit, as aforesaid (the "Cash Security") to the extent required
for the payment of any Minimum Rent and additional rent, or any other
payments as to which Tenant shall be in default or for any monies which
Landlord may expend or may be required to expend by reason of Tenant's
default (after notice and the expiration of any applicable cure period
provided in this Lease) in respect of any of the covenants, agreements,
terms, provisions and conditions of this Lease, including any damages or
deficiency in the reletting of the Demised Premises, whether such damages
or deficiency accrued before or after summary proceedings or other re-entry
by Landlord. Landlord shall not be required to so use, apply or retain the
whole or any part of the Cash Security, but if the whole or any part
thereof shall be so used, applied or retained, then Tenant shall, upon
demand, immediately deliver to Landlord a supplementary letter of credit
equal to the amount of the Cash Security so used, applied or retained or a
replacement letter of credit for the Security Deposit Amount (each of which
shall comply with the requirements of Section 33.02 below), so that
Landlord shall have the entire Security Deposit Amount on hand at all times
during the Term. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants, agreements and conditions of
this Lease, the Cash Security and/or Letter of Credit, as applicable, shall
be returned to Tenant within thirty (30) days after the Expiration Date and
delivery of exclusive possession of the Demised Premises to Landlord. In
the event of any making or assignment of any Underlying Lease or upon a
conveyance of the Building: (i) Landlord shall have the right to transfer
the Cash Security and/or Letter of Credit, as applicable, to the assignee
or lessee or transferee, (ii) upon such transfer to the assignee, lessee,
or transferee, and the assumption by the assignee, lessee, or transferee of
the Cash Security and/or Letter of Credit in writing, Landlord shall
thereupon be released by Tenant from all liability for the return of such
Cash Security and/or Letter of Credit, as applicable, and (iii) Tenant
agrees to look solely to Landlord's successor for the return of said Cash
Security and/or Letter of Credit, as applicable; it being agreed that the
provisions hereof shall apply to every transfer or assignment made of the
Cash Security and/or Letter of Credit, as applicable, to a new Landlord.
Tenant further covenants that Tenant will not assign or encumber or attempt
to assign or encumber either the Cash Security or the Letter of Credit, as
applicable, and that neither Landlord nor Landlord's successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance
Section 33.02.
-------------
A. The Letter of Credit that Tenant shall deliver to Landlord
(the "Letter of Credit") shall be a clean, irrevocable, transferable and
unconditional letter of credit (the "Letter of Credit") issued by and drawn
upon a commercial bank (hereinafter referred to as the "Issuing Bank")
which shall be a member bank of the New York Clearinghouse Association (or,
in the alternative, which shall have offices for banking purposes in the
Borough of Manhattan and shall have a net worth of not less than
$100,000,000, with appropriate evidence thereof to be submitted by Tenant),
which Letter of Credit shall: (i) have a term of not less than one year,
(ii) be materially in the form annexed hereto as Exhibit "G" or such other
form as is satisfactory to Landlord, (iii) be for the benefit of Landlord,
(iv) be in the amount of $1,500,000.00 (i.e., the Security Deposit Amount,
subject to reduction as provided in Subsection 33.02B), (v) except as
otherwise provided in this Section 33.02, conform and be subject to Uniform
Customs and Practice for Documentary Credits, 1993 Revision, ICC
Publication No. 500 (or any revision thereof or successor thereto), (vi) be
fully transferable by Landlord without any fees or charges therefor (or, if
the Letter of Credit shall provide for the payment of any transfer fees or
charges, the same shall be paid by Tenant as and when such payment shall be
requested by the Issuing Bank), (vii) provide that Landlord shall be
entitled to draw upon the Letter of Credit upon presentation to the Issuing
Bank of a sight draft accompanied by Landlord's statement that Landlord is
then entitled to draw upon the Letter of Credit pursuant to the terms of
this Lease, and (viii) provide that the Letter of Credit shall be deemed
automatically renewed, without amendment, for consecutive periods of one
year each year thereafter during the entire Term of this Lease and for a
period of thirty (30) days thereafter, unless the Issuing Bank shall send
notice (the "Non-Renewal Notice") to Landlord by registered mail, return
receipt requested, not less than thirty (30) days next preceding the then
expiration date of the Letter of Credit that the Issuing Bank elects not to
renew such Letter of Credit, in which case Landlord shall have the right,
by sight draft on the Issuing Bank, to receive the monies represented by
the then existing Letter of Credit, and to hold and/or disburse such
proceeds as cash security. If Landlord shall fail, for any reason
whatsoever, to draw upon the Letter of Credit within said thirty (30) day
period, and the Letter of Credit shall expire prior to the thirtieth (30th)
day following the Expiration Date of the Term of this Lease, then Tenant
shall, upon demand, immediately furnish Landlord with a replacement Letter
of Credit (which shall comply with all of the conditions set forth in the
immediately preceding sentence), in the Security Deposit Amount so that
Landlord shall have the entire Security Deposit Amount on hand at all times
during the Term and for a period of thirty (30) days thereafter. Tenant
acknowledges and agrees that the Letter of Credit shall be delivered to
Landlord as security for the faithful performance and observance by Tenant
of all of the covenants, agreements, terms, provisions and conditions of
this Lease, and that Landlord shall have the right to draw upon the entire
Letter of Credit (or a portion thereof) as hereinbefore described in
Section 33.01 above.
B. Landlord agrees that, provided that Tenant shall not then be
in default in any of its monetary obligations or in default (after notice
and the expiration of any applicable cure period provided in this Lease)
with respect to any of the material terms, provisions, covenants,
agreements and conditions of this Lease, Tenant shall be permitted to
reduce the amount of said Letter of Credit by the sum of $115,960.50 on the
first anniversary of the Commencement Date and on each anniversary of the
Commencement Date thereafter through and including the tenth (10th)
anniversary of the Commencement Date, provided, however, that at no time
shall the Letter of Credit furnished to Landlord pursuant to this Section
33.02 be reduced to an amount less than $340, 395.00. In the event that, at
the time Tenant would have been permitted to so reduce the amount of the
Letter of Credit in accordance with the provisions of this Section 33.02B,
Tenant shall have been in default of any of its monetary obligations
hereunder or in default (after notice and the expiration of any applicable
cure period provided in this Lease), with respect to any of the material
terms, covenants, or conditions to be performed or observed by Tenant under
this Lease, then following the cure of such default, as evidenced to the
satisfaction of Landlord, Tenant may reduce the Letter of Credit by the
aforesaid amount.
ARTICLE 34
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RENEWAL OPTION
Section 34.01. Tenant shall have an option (the "Renewal Option") to
extend the term of this Lease for a single renewal term of five (5) years
(the "Renewal Term"), which shall commence at noon on the Expiration Date
and shall expire at 11:59 p.m. on the fifth (5th) anniversary of the
Expiration Date or such earlier date upon which this Lease may be
terminated as herein provided. The Renewal Option may be exercised only by
Tenant giving Landlord written notice (the "Renewal Notice") of Tenant's
intention to renew this Lease pursuant to this Article 34 not later than
one (1) year prior to the Expiration Date, and not earlier than twenty-four
(24) months prior to the Expiration Date (TIME BEING STRICTLY OF THE
ESSENCE WITH RESPECT TO THE GIVING OF SUCH NOTICE), and such Renewal Notice
shall be deemed properly given only if, on the date that Tenant shall
exercise the Renewal Option (the "Exercise Date"): (i) this Lease shall not
have been previously terminated or canceled, (ii) Tenant shall be in
occupancy of all of the Demised Premises, and (iii) Tenant shall not be in
breach or default of any of the obligations of Tenant under this Lease.
Time shall be strictly of the essence with respect to the giving of the
Renewal Notice by Tenant to Landlord. Notwithstanding anything to the
contrary contained in this Section 34.01, if, subsequent to the Exercise
Date but prior to the commencement of the Renewal Term: (x) Tenant shall
not be in occupancy of all of the Demised Premises, or (y) an Event of
Default shall have occurred and then be continuing, then Landlord, in
Landlord's sole and absolute discretion, may elect, by written notice to
Tenant, to void Tenant's exercise of the Renewal Option, in which case
Tenant's exercise of the Renewal Option shall be of no force or effect, and
the Term shall end on the Expiration Date of the initial term of this
Lease, unless sooner canceled or terminated pursuant to the provisions of
this Lease or by law.
Section 34.02. If Tenant shall exercise the Renewal Option in
accordance with the provisions of this Article 34, then this Lease shall be
extended for the Renewal Term upon all of the terms, covenants and
conditions contained in this Lease, except that: (i) during the Renewal
Term, the Minimum Rent shall be the fair annual market rental value (the
"Market Value Rent") of the Demised Premises on the Expiration Date,
determined as provided in Section 34.03 below, but in no event less than
the Minimum Rent in effect on the Expiration Date, (ii) during the Renewal
Term, the Base Tax Amount shall be Taxes for the fiscal year in which the
first day of the Renewal Term shall occur, (iii) during the Renewal Term,
the Base Operating Year shall be the calendar year in which the first day
of the Renewal Term shall occur, (iv) from and after the Exercise Date (but
subject to the provisions of the last sentence of Section 34.01 above), all
references to "Expiration Date" shall be deemed to refer to the last day of
the Renewal Term, and all references to "Term" shall be deemed to include
the Renewal Term, (v) Tenant shall have no further right or option to renew
this Lease or the term hereof, and (vi) all provisions of this Lease
concerning the performance by Landlord or Tenant of any work, and the grant
by Landlord of any monetary contribution, rent abatement or rent credit, in
connection with Tenant's initial occupancy of the Demised Premises shall be
deemed deleted.
Section 34.03.
-------------
A. The term "Market Value Rent" shall mean the annual fair market
rental value of the Demised Premises as of the Determination Date (as
hereinafter defined), taking into consideration the value of such rental
abatements and construction allowances customarily being granted by
landlords at such times in Comparable Buildings to tenants entering into
leases of the size of the Demised Premises for a five (5) year term and all
other relevant factors, but in no event less than the Minimum Rent and all
additional rent payable pursuant to Article 19 of this Lease ("Recurring
Additional Rent") payable by Tenant in the twelve-month period immediately
prior to the Expiration Date of the initial term of this Lease. In
addition, commencing on the first day of the Renewal Term, Tenant shall
pay, as additional rent, in addition to the escalation payments provided
for under this Lease, such other types of escalation payments which
Landlord shall be then charging tenants under other leases, or shall be
then requiring in other offers for leases, in the Building. For purposes
hereof, the "Determination Date" shall mean the date which shall occur one
(1) year prior to the Expiration Date.
B. The initial determination of Market Value Rent shall be made
by Landlord. In the event that Tenant shall have duly and timely delivered
this Renewal Notice, then Landlord shall give notice (the "MVR Notice") to
Tenant of Landlord's initial determination of the Market Value Rent within
thirty (30) days following the Determination Date. Such initial
determination of Market Value Rent shall be final and binding in fixing the
Market Value Rent, unless, within thirty (30) days after Landlord shall
have given MVR Notice to Tenant, Landlord shall receive a notice from
Tenant (the "MVR Objection Notice"): (i) advising Landlord that Tenant
disagrees with the initial determination of Market Value Rent set forth in
the MVR Notice, and (ii) proposing a specific alternative Market Value
Rent, which shall have been determined in good faith by Tenant. If Landlord
and Tenant shall fail to agree upon the Market Value Rent within thirty
(30) days after Landlord shall have received the MVR Objection Notice, then
Landlord and Tenant each shall give notice to the other setting forth the
name and address of an arbitrator designated by the party giving such
notice. If either party shall fail to give notice of such designation
within ten (10) days, then the first arbitrator chosen shall make the
determination alone. If two arbitrators shall have been designated, such
two arbitrators shall, within thirty (30) days following the designation of
the second arbitrator, make their determinations of Market Value Rent in
writing and give notice thereof to each other and to Landlord and Tenant.
Such two arbitrators shall have twenty (20) days after the receipt of
notice of each other's determinations to confer with each other and to
attempt to reach agreement as to the determination of Market Value Rent. If
such two arbitrators shall concur as to the determination of the Market
Value Rent, such concurrence shall be final and binding upon Landlord and
Tenant. If such two arbitrators shall fail to concur by the end of said
twenty (20) day period, then such two arbitrators shall forthwith designate
a third arbitrator. If the two arbitrators shall fail to agree upon the
designation of such third arbitrator within ten (10) days, then either
party may apply to the American Arbitration Association or any successor
thereto having jurisdiction for the designation of such arbitrator. All
arbitrators shall be real estate appraisers or consultants who shall have
had at least fifteen (15) years continuous experience in the business of
appraising or managing real estate or acting as real estate agents or
brokers in the Borough of Manhattan, City of New York. The third arbitrator
shall conduct such hearings and investigations as he may deem appropriate
and shall, within thirty (30) days after his designation, choose one of the
determinations of the two arbitrators originally selected by the parties,
and that choice by the third arbitrator shall be binding upon Landlord and
Tenant. Each party shall pay its own counsel fees and expenses, if any, in
connection with any arbitration under this Article 34, including the
expenses and fees of any arbitrator selected by it in accordance with the
provisions of this Article, and the parties shall share equally all other
expenses and fees of any such arbitration. The determination rendered in
accordance with the provisions of this Section 34.03 shall be final and
binding in fixing the Market Value Rent. The arbitrators shall not have the
power to add to, modify or change any of the provisions of this Lease.
C. If for any reason the Market Value Rent shall not have been
determined prior to the commencement of the Renewal Term, then, until the
Market Value Rent and, accordingly, the Minimum Rent, shall have been
finally determined, the Minimum Rent and all Recurring Additional Rent
payable for and during the Renewal Term shall be equal to the Market Value
Rent and Recurring Additional Rent proposed by Landlord. Upon final
determination of the Market Value Rent, an appropriate adjustment to the
Minimum Rent shall be made reflecting such final determination, and
Landlord or Tenant, as the case may be, shall refund or pay to the other
any overpayment or deficiency, as the case may be, in the payment of
Minimum Rent from the commencement of the Renewal Term to the date of such
final determination.
ARTICLE 35
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FIRST OFFER RIGHTS
Section 35.01.
-------------
A. During the first five (5) years of the Term of this Lease,
provided that (x) this Lease shall then be in full force and effect, (y)
Tenant shall not then be in default with respect to any of Tenant's
monetary obligations or in default (after notice and the expiration of any
applicable cure period provided in this Lease) with respect to any of the
material terms, provisions, covenants, agreements and conditions of this
Lease and (z) Tenant or a Related Corporation shall then occupy the entire
Demised Premises, then, at the time that any First Offer Space (as
hereinafter defined) shall be available for lease by Landlord, Landlord
shall deliver to Tenant notice of such availability (each a "First Offer
Space Notice"), and Tenant shall, subject to the provisions of this Article
35, have one-time first offer rights (collectively, the "First Offer
Rights") with respect to each such First Offer Space. If Landlord has any
obligation to take any affirmative action or if Landlord has any right to
trigger a tenant's right, in either instance, with respect to any First
Offer Space (or any portion thereof) under any lease with another tenant of
the Building (which tenant has rights with respect to such First Offer
Space (or any portion thereof)), Landlord will take such action or exercise
such right in accordance with the terms of the relevant lease. The First
Offer Spaces are as follows (with each being referred to individually as a
"First Offer Space"): (i) approximately 9,879 rentable square feet of space
on the thirtieth (30th) floor of the Building as depicted on Exhibit K (the
"First 30th Floor Offer Space"), which space Landlord hereby agrees not to
lease to any other tenant during the six (6) month period following the
execution of this Lease; provided, however, that, notwithstanding the
foregoing, Landlord may lease or attempt to lease the 30th Floor Offer
Space during such six month (6) period (without offering same to Tenant)
if, prior to the end of such six (6) month period, Landlord shall have
leased or licensed the space on the fifteenth (15th) floor of the Building
(the "15th Floor Space") as depicted on Exhibit L to a third party tenant
and the space on the twelfth (12th) floor of the Building (the "12th Floor
Space") as depicted on Exhibit M to a third party tenant (it being
understood that Landlord shall promptly notify Tenant of the latter to
occur of the leasing of the 15th Floor Space or the 12th Floor Space); (ii)
approximately 6,434 rentable square feet of space on the thirtieth (30th)
floor of the Building as depicted on Exhibit N (the "Second 30th Floor
Offer Space"), which Landlord anticipates shall become available for lease
by Landlord on or about January 1, 2000, subject to the superior right of
Donaldson, Lufkin, and Jenrette, Inc. to lease such space; (iii) any
portion of the thirty-sixth (36th) floor of the Building (the "36th Floor
Offer Space") which shall become available for lease by Landlord, subject
to the superior right of Lester Schwab Katz & Dwyer ("Lester Schwab") to
lease all or a portion of such space within two (2) years from the
Commencement Date; provided, however, that if Lester Schwab elects to take
only a portion of the 36th Floor Offer Space, Tenant may lease from
Landlord that portion of space on the thirty sixth (36th) floor not leased
by Lester Schwab (the "Remaining 36th Floor Offer Space") or any portion
thereof, provided that the portion of the Remaining 36th Floor Offer Space
that Tenant does not elect to lease is, in Landlord's sole discretion, an
area that is contiguous, commercially rentable, and divisible from that
portion of the Remaining 36th Floor Offer Space that Tenant elects to so
lease; (iv) the entire rentable portion of the thirty-first (31st) floor of
the Building and that portion of the thirtieth (30th) floor of the
Building, as depicted on Exhibit O (the "30th/31st Floor Offer Space"),
subject to the superior right of Donaldson, Lufkin, and Jenrette, Inc. to
lease such space; it being agreed, however, that Tenant shall not have the
right to lease less than the entire 30th/31st Floor Offer Space; and (v)
the entire rentable portion of the twenty-first (21st) floor of the
Building, as depicted on Exhibit P (the "21st Floor Offer Space"), subject
to the exercise by Garban, Ltd. of Garban, Ltd.'s right to cancel its lease
with respect to such space effective November 1, 2000; provided, however,
that Tenant must elect to lease all of the 21st Floor Offer Space unless
Landlord, in Landlord's sole discretion, agrees to lease a lesser portion
of such space to Tenant, in which case such portion shall contain at least
one-half of the rentable square footage of the 21st floor of the Building.
Notwithstanding the foregoing, in the event Tenant does not elect to lease
the entire 30th/31st Floor Offer Space in accordance with the provisions of
clause (iv) above, and if General Reinsurance Corp. does not elect to renew
its lease for such space, then, subject to the right of Donaldson, Lufkin,
and Jenrette, Inc. to lease such space, Tenant may lease from Landlord that
portion of space, if any, which Landlord, in Landlord's sole discretion,
agrees to lease to Tenant, provided that such portion shall contain at
least one-half of the rentable square footage on the floor of the Building
where such space is located. The lease of General Reinsurance Corp. with
Landlord with respect to the 30th/31st Floor Offer Space expires according
to its terms in March 2002. The First Offer Space Notice shall set forth
the First Offer Space, together with a floor plan depicting such First
Offer Space. In the event Tenant fails to deliver to Landlord written
notice of Tenant's election to exercise a particular First Offer Right
(each a "First Offer Notice") within ten (10) business days after delivery
of the First Offer Space Notice (time being of the essence with respect
thereto) (the "First Offer Exercise Date"), the relevant First Offer Right
shall be deemed revoked, null, and void, and of no further force or effect,
and Tenant shall have no further rights of first offer with respect to such
First Offer Space, and Landlord may thereafter proceed with the leasing of
the relevant First Offer Space to any party upon any terms and conditions.
Such First Offer Notice shall be deemed properly given only if on the First
Offer Exercise Date: (i) this Lease shall not have been previously
terminated or canceled and (ii) Tenant shall not be in breach or default of
any of Tenant's monetary or material non-monetary obligations under this
Lease (after notice and the expiration of any applicable cure period
provided in this Lease).
B. Notwithstanding anything to the contrary contained in this
Section 35.01, if on the relevant First Offer Space Commencement Date (as
defined in Subsection 35.02B), an Event of Default shall have occurred and
be continuing (and if the underlying default shall have been of a monetary
or material non-monetary nature), Landlord, in Landlord's sole and absolute
discretion, may elect, by written notice to Tenant, to void Tenant's
exercise of the relevant First Offer Right, in which case Tenant's exercise
of such First Offer Right shall be of no force or effect.
Section 35.02.
-------------
A. If Tenant shall duly and timely deliver the relevant First
Offer Notice to Landlord in the manner specified hereinabove, the parties
hereto shall enter into an amendment (the "First Offer Space Lease
Amendment") with respect to the First Offer Space in question, pursuant to
which (i) the relevant First Offer Space shall be added to and become part
of the Demised Premises under this Lease, (ii) the Minimum Rent shall be
increased by an amount equal to the product of (a) the Minimum Rent then
payable for the Demised Premises (on a per square foot basis), and (b) the
rentable square footage of the relevant First Offer Space, (iii) Tenant's
Proportionate Share shall be adjusted to reflect the addition of the
relevant First Offer Space (with no change in the Base Tax Amount or the
Base Operating Year), (iv) Landlord shall provide Tenant with an abatement
of Minimum Rent under the Lease with respect to the relevant First Offer
Space from the First Offer Space Commencement Date in an amount equal to
the product of (x) three (3) months of Minimum Rent for the relevant First
Offer Space, and (y) the amount of the percentage amount determined by
dividing the number of months then remaining in the Term by the total
number of months in the Term (the "Allocable Percentage"), (v) Landlord's
Contribution for the relevant First Offer Space shall be equal to the
product of (x) the Allocable Percentage and (y) Landlord's Contribution (on
a per square foot basis) and (z) the rentable square footage of the
relevant First Offer Space, (vi) the Security Deposit Amount for the
relevant First Offer Space shall be equal to the product of (x) Landlord's
Contribution for the relevant First Offer Space (on a per square foot
basis) and (y) the rentable square footage of the relevant First Offer
Space, and (vii) the lease term with respect to the relevant First Offer
Space shall be co-terminous with the Term of the Lease; provided, however,
that the failure of the parties to so execute or exchange said First Offer
Space Lease Amendment shall not in any way reduce the parties' obligations
or rights under this Lease. Notwithstanding anything to the contrary
contained in this Lease, the Security Deposit Amount for the relevant First
Offer Space will be reduced on the first anniversary of the relevant First
Offer Space Commencement Date and on each anniversary of the relevant First
Offer Space Commencement Date thereafter through and including the tenth
(10th) anniversary of the relevant First Offer Space Commencement Date by
the "Differential Amount"(as hereinafter defined). For the purposes hereof,
for any relevant First Offer Space the "Differential Amount" is that amount
obtained by dividing the sum obtained by subtracting from the Security
Deposit Amount for the relevant First Offer Space an amount equal to three
(3) months of Fixed Rent for the relevant First Offer Space by the number
(10); provided, however, that at no time shall the Security Deposit Amount
for the relevant First Offer Space be reduced to an amount less than three
(3) months of Fixed Rent for the relevant First Offer Space.
B. If Tenant shall timely exercise the relevant First Offer
Right, Landlord shall endeavor to deliver possession of the relevant First
Offer Space to Tenant on the date set forth in the relevant First Offer
Space Notice, subject to delays beyond Landlord's reasonable control (the
date of delivery of possession of the relevant First Offer Space to Tenant
being hereinafter referred to as the "First Offer Space Commencement
Date").
C. The relevant First Offer Space shall be delivered to Tenant in
its then "as is" condition, and Landlord shall have no obligation to
perform any work or Alterations in order to prepare the relevant First
Offer Space for Tenant's initial occupancy thereof, except that Landlord
shall, at Landlord's cost and expense, demolish the relevant First Offer
Space and install Building Standard A/C Unit(s) (as hereinafter defined),
the tonnage of which shall be proportionate to the size of the relevant
First Offer Space; it being agreed that, notwithstanding anything to the
contrary contained in this Lease, the tonnage of Building Standard A/C
Unit(s) for a full floor at the Building is 120 tons ("Landlord's First
Offer Space Work"). Landlord shall perform Landlord's First Offer Space
Work in the same manner in which Landlord was obligated to perform
Landlord's work.
Section 35.03. If Landlord, after using reasonable efforts, is unable
to give possession of the relevant First Offer Space to Tenant on the
relevant First Offer Space Commencement Date because of the holding-over or
retention of possession of any tenant, undertenant or occupants, or for any
other reason beyond Landlord's reasonable control, Landlord shall not be
subject to any liability for failure to give possession on said date and
the validity of this Lease shall not be impaired under such circumstances,
nor shall the same be construed in any way to extend the term of the First
Offer Space or the Term of this Lease, but the relevant First Offer Space
Commencement Date shall be deemed extended until the date on which Landlord
shall have delivered possession thereof to Tenant (provided Tenant is not
responsible for the inability to obtain possession). Notwithstanding
anything to the contrary contained in this Lease, in the event that
Landlord is unable to deliver the relevant First Offer Space to Tenant
within ninety (90) days from the relevant First Offer Space Commencement
Date (the ninetieth (90th) day of such period being referred to as the
"Inability to Convey Date"), then Tenant may, at Tenant's option, elect to
revoke Tenant's exercise of such relevant First Offer Right within ninety
(90) days after the Inability to Convey Date (such period being hereinafter
referred to as the "Tenant Revocation Period"), it being understood that if
Tenant does not elect to revoke Tenant's exercise of Tenant's relevant
First Offer Right by the expiration of such Tenant Revocation Period,
Tenant shall be deemed to have waived Tenant's right to revoke Tenant's
exercise of Tenant's relevant First Offer Right and shall remain obligated
with respect to the relevant First Offer Space pursuant to the provisions
of this Lease and shall accept the relevant First Offer Space on the date
on which Landlord delivers possession thereof to Tenant in accordance with
the provisions of this Article 35 of the Lease. The provisions of this
Section 35.03 are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property
Law.
Section 35.04. All materials, work, labor, fixtures and installations
required by Tenant for completion of the relevant First Offer Space (if
any) other than Landlord's First Offer Space Work, shall (subject to the
provisions of Article 5 hereof) be performed by Tenant, at Tenant's sole
cost and expense (other than Landlord's Contribution for the relevant First
Offer Space as provided in Subsection 35.02A above).
ARTICLE 36
----------
EXPANSION OPTION
Section 36.01.
-------------
A. Notwithstanding anything to the contrary stated in this Lease,
provided that this Lease shall then be in full force and effect and that
Tenant shall not then be in default with respect to any of Tenant's
monetary obligations or in default (after notice and the expiration of any
applicable cure period provided in this Lease) with respect to any of the
material terms, provisions, covenants, agreements and conditions of this
Lease, Landlord shall provide to Tenant, during the first five (5) years of
the Term (but in no event more often than three (3) times in any twelve
(12) month period), within thirty (30) days following Landlord's receipt of
Tenant's written request therefor, a list (the "Available Space List") of
space(s) contiguous to the Demised Premises (or if such contiguous space(s)
is not available, other space(s) in the Building) comprising up to one full
floor of the Building and available for lease by Landlord or anticipated to
become available for lease within four (4) months following the date of the
delivery of such Available Space List (the "Available Expansion Space(s)").
B. Provided that this Lease shall be in full force and effect and
Tenant shall not then be in default with respect to any of Tenant's
obligations under this Lease, Tenant shall have the one-time option (the
"Expansion Option"), subject to any existing rights or options of other
tenants (i.e., rights existing as of the date of such Available Space List)
and any renewal rights or renewal options granted to any future occupants
of the Available Expansion Space, to lease one of the Available Expansion
Spaces or portions thereof upon the terms and conditions contained in this
Article 35. The Expansion Option shall be exercisable only by Tenant giving
written notice to Landlord that Tenant elects to exercise such Expansion
Option (the "Expansion Notice"), not later than ten (10) Business Days
after the date of delivery of the Available Space List to Tenant (time
being strictly of the essence with respect to the giving of such expansion
notice), and such Expansion Notice shall specify which Available Expansion
Space or portions thereof Tenant elects to lease pursuant to this Expansion
Option, it being agreed that Tenant may elect to lease less than an entire
particular Available Expansion Space provided that the remaining portion of
the Available Expansion Space that Tenant does not elect to lease (the
"Non-Leased Space") is, in Landlord's judgment, an area that is contiguous,
commercially rentable, and divisible from that portion of the Available
Expansion Space that Tenant elects to so lease (the "Expansion Space"),
and, in no event, shall such Non-Leased Space contain less than one-quarter
of the rentable square footage on the floor of the Building where such
Expansion Space is located (i.e., one "quadrant").
Section 36.02.
-------------
A. The terms and conditions of the Lease with respect to the
Expansion Space shall be the same terms and conditions contained in this
Lease, except as provided herein, such that (i) the Expansion Space shall
be added to and become part of the Demised Premises under this Lease, (ii)
the Minimum Rent shall be increased by an amount equal to the product of
(a) the Minimum Rent then payable for the Demised Premises (on a per square
foot basis), and (b) the rentable square footage of the Expansion Space,
(iii) Tenant's Proportionate Share shall be adjusted to reflect the
addition of the Expansion Space (with no change in the Base Tax Amount or
the Base Operating Year), (iv) Landlord shall provide Tenant with an
abatement of Minimum Rent under the Lease with respect to the Expansion
Space in an amount equal to the product of (x) three (3) months of Minimum
Rent for the Expansion Space, and (y) the amount of the percentage amount
determined by dividing the number of months then remaining in the Term by
the total number of months in the Term (the "Allocable Percentage") (v)
Landlord's Contribution for the Expansion Space shall be equal to the
product of (x) the Allocable Percentage and (y) Landlord's Contribution (on
a per square foot basis) and (z) the rentable square footage of the
Expansion Space, (vi) the Security Deposit Amount for the Expansion Space
shall be equal to the product of (x) Landlord's Contribution for the
relevant Expansion Space (on a per square foot basis) and (y) the rentable
square footage of the Expansion Space, and (vii) the lease term with
respect to the Expansion Space shall be co-terminous with the Term of the
Lease. Notwithstanding anything to the contrary contained in this Lease,
the Security Deposit Amount for the relevant Expansion Space will be
reduced on the first anniversary of the relevant Expansion Space
Commencement Date and on each anniversary of the relevant Expansion Space
Commencement Date thereafter through and including the tenth (10th)
anniversary of the relevant Expansion Space Commencement Date by the
"Expansion Differential Amount" (as hereinafter defined). For the purposes
hereof, for any relevant Expansion Space the "Expansion Differential
Amount" is that amount obtained by dividing the sum obtained by subtracting
from the Security Deposit Amount for the relevant Expansion Space an amount
equal to three (3) months of Fixed Rent for the relevant Expansion Space by
the number (10); provided, however, that at no time shall the Security
Deposit Amount for the relevant Expansion Space be reduced to an amount
less than three (3) months of Fixed Rent for the relevant Expansion Space.
If Tenant shall timely exercise the Expansion Option, Landlord shall
deliver possession of the Expansion Space to Tenant on a date set forth in
the Expansion Notice, subject to delays beyond Landlord's reasonable
control (the date of delivery of possession of the Expansion Space to
Tenant being hereinafter referred to as the "Expansion Space Commencement
Date"). In the event that Tenant timely exercises the right granted herein,
Landlord and Tenant shall promptly thereafter execute an amendment to this
Lease to incorporate the Expansion Space and to make necessary adjustments
to the relevant provisions of this Lease (e.g., the definitions of Square
Feet of Rentable Area, Tenant's Proportionate Share, Minimum Rent, Security
Deposit Amount, Landlord's Contribution); provided, however, that the
failure to so execute or exchange said amendment shall not in any way
reduce Tenant's obligations or Landlord's rights under this Lease.
B. The Expansion Space shall be delivered to Tenant in its then
"as is" condition, and Landlord shall have no obligation to perform any
work or Alterations in order to prepare the Expansion Space for Tenant's
initial occupancy thereof, except that Landlord shall, at Landlord's cost
and expense, demolish the Expansion Space and install air-conditioning
unit(s), the tonnage of which shall be proportionate to the Building
Standard A/C Units based on the size of the Expansion Space ("Landlord's
Expansion Space Work"). Landlord shall perform Landlord's Expansion Space
Work in the same manner in which Landlord was obligated to perform
Landlord's Work. Notwithstanding anything to the contrary contained in this
Section 36.02B, if on the relevant Expansion Space Commencement Date (as
defined in Subsection 36.02A), an Event of Default shall have occurred and
be continuing (and if the underlying default shall have been of a monetary
or material non-monetary nature), Landlord, in Landlord's sole and absolute
discretion, may elect, by written notice to Tenant, to void Tenant's
exercise of such Expansion Option, in which case Tenant's exercise of the
Expansion Option shall be of no force or effect.
Section 36.03. If Landlord, after using reasonable efforts, is unable
to give possession of the Expansion Space to Tenant on the Expansion Space
Commencement Date because of the holding-over or retention of possession of
any tenant, undertenant or occupants, or for any other reason beyond
Landlord's reasonable control, Landlord shall not be subject to any
liability for failure to give possession on said date and the validity of
this Lease shall not be impaired under such circumstances, nor shall the
same be construed in any way to extend the term of the Expansion Space or
the Term of this Lease, but the Expansion Space Commencement Date shall be
deemed extended until the date on which Landlord shall have delivered
possession thereof to Tenant (provided Tenant is not responsible for the
inability to obtain possession). Notwithstanding anything to the contrary
stated herein, in the event that Landlord is unable to deliver the
Expansion Space to Tenant within one hundred eight (180) days from the
Expansion Space Commencement Date, then Tenant may, at Tenant's option,
elect a substitute Available Expansion Space from an updated Available
Space List (the "Substitute Available Space List"), which shall be
comprised of a list of space(s) contiguous to the Demised Premises or if
such contiguous space(s) is not available, other space(s) in the Building,
comprising up to one full floor of the Building and then available for
lease by Landlord or anticipated to become available for lease with four
(4) months following the date of delivery of such Substitute Available
Space List (the "Substitute Available Expansion Space"). The provisions of
this Section 35.03 are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property
Law.
Section 36.04. Except as expressly provided herein, all materials,
work, labor, fixtures and installations required by Tenant for completion
of the Expansion Space (if any) shall be performed by Tenant, at Tenant's
sole cost and expense.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
BROADPINE REALTY HOLDING COMPANY, INC.,
Landlord
By: /s/ Elizabeth
---------------------------------------
theglobe.com, inc. f/k/a WebGenesis, Inc.
Tenant
By: /s/ Frank Joyce
---------------------------------------
Tenant's Federal ID# 14-1782-422
----------------------
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this 12th day of January, 1999, before me personally came Francis
T. Joyce, to me known, who being by me duly sworn, did depose and say that
he is the CFO and Treasurer of theglobe.com, inc. f/k/a WebGenesis, Inc.,
the corporation described in and which executed the foregoing instrument;
and that he signed his name thereto by order of the Board of Directors of
said corporation.
/s/ Jason R. Grebin
------------------------
Notary Public
<PAGE>
EXHIBIT "A"
-----------
FLOOR PLANS
The location and dimensions of walls, partitions, columns, stairs and
openings are approximate and subject to revisions due to mechanical work,
job conditions and requirements of governmental departments and
authorities. If the space as actually partitioned shall differ in any
respect from this sketch, the actual area as partitioned shall in all
events control. No resulting deviation or discrepancy shall affect the rent
or Tenant's obligations under this Lease.
<PAGE>
[Floor plan for the 22nd floor of 120 Broadway]
<PAGE>
EXHIBIT "B"
-----------
COMMENCEMENT DATE AGREEMENT
AGREEMENT made this ______ day of _________, 1999, between Broadpine
Realty Holding Company, Inc., hereinafter referred to as "Landlord", and
theglobe.com, inc. f/k/a WebGenesis, Inc., hereinafter referred to as
"Tenant".
WITNESSETH:
1. Landlord and Tenant have heretofore entered into a written
indenture of Lease dated as of _____________ __, 199_ (hereinafter referred
to as the "Lease"), for the leasing by Landlord to Tenant of certain space
in the building known as 120 Broadway, New York, N.Y., all as in said Lease
more particularly described.
2. Pursuant to Article 2 of the Lease, Landlord and Tenant agree that
the Commencement Date of the term of said Lease is [was] [shall be] ; and
that the term thereof shall expire, unless sooner terminated pursuant to
the Lease, on ________________________ (the "Expiration Date").
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Commencement Date Agreement as of the day and year first above written.
BROADPINE REALTY HOLDING
COMPANY, INC., Landlord
By:
---------------------------------------
theglobe.com, inc. f/k/a WebGenesis, Inc.,
Tenant
By:
---------------------------------------
<PAGE>
STATE OF )
--------------
) ss.:
COUNTY OF )
-------------
On this ______ day of __________, 1999, before me personally came
________________________, to me known, who being by me duly sworn, did
depose and say that he is the of theglobe.com, inc. f/k/a WebGenesis, Inc.,
the corporation described in and which executed the foregoing instrument;
and that he signed his name thereto by order of the Board of Directors of
said corporation.
--------------------------
Notary Public
<PAGE>
EXHIBIT "C"
-----------
LANDLORD'S WORK
All work set forth in this Exhibit "C" ("Landlord's Work") shall be of
material, design, capacity, finish and color adopted by Landlord as
"Building Standard".
Landlord shall:
1. Subject to the provisions of the next sentence, Landlord, at
Landlord's expense, agrees to install new 120 ton air cooled air
conditioning units (the "Building Standard A/C Units") in the Demised
Premises to exclusively service same. Upon written notice from Tenant to
Landlord, which notice shall be received by Landlord prior to the ordering
by Landlord of the Building Standard A/C Units, and which notice shall be
accompanied by a payment in the amount of the Excess A/C Amount (as
hereinafter defined), Landlord shall install, at Landlord's expense, new
140 ton air cooled air conditioning units (the "Upgraded A/C Units") in
lieu of the Building Standard A/C Units. The term "Excess A/C Amount" shall
mean the difference between the cost of purchasing and installing the
Upgraded A/C Units and the Building Standard A/C Units. Landlord will
inform Tenant of the Excess A/C Amount within five (5) business days
following written request therefor. Landlord's Work shall include
purchasing and installing the Building Standard A/C Units or the Upgraded
A/C Units, as the case may be, including duct mounted smoke detectors,
window louvers, ducts to the louvers, and control wiring. Notwithstanding
the above, Tenant shall be responsible for the cost of constructing the
mechanical rooms and the duct work distribution throughout the Demised
Premises.
<PAGE>
EXHIBIT "D"
-----------
LAND DESCRIPTION
ALL that certain plot, piece or parcel of land, situate, lying and being in
the Borough of Manhattan, County of New York, City and State of New York,
bounded and described as follows:
BEGINNING at a point formed by the intersection of the northerly side of
Pine Street and the westerly side of Nassau Street;
RUNNING THENCE northerly along the westerly side of Nassau Street, 152 feet
3 inches to the southerly side of Cedar Street;
THENCE westerly along the southerly side of Cedar Street, 312 feet 7 inches
to the easterly side of Broadway;
THENCE southerly along the easterly side of Broadway, 167 feet 1 inch to
the northerly side of Pine Street;
THENCE easterly along the northerly side of Pine Street, 304 feet 2 inches
to the point or place of BEGINNING.
<PAGE>
EXHIBIT "E"
-----------
CLEANING SPECIFICATIONS
General Cleaning
- ----------------
Nightly:
General Offices including conference rooms:
1. All hardsurfaced flooring to be swept.
2. Carpet sweep all carpets, moving only light furniture (desks, file
cabinets, etc. not to be moved).
3. Hand dust and wipe clean all furniture, fixtures and window sills.
4. Empty and clean all ash trays and screen all sand urns.
5. Empty and clean all waste receptacles and remove wastepaper.
6. Dust interiors of all waste disposal cans and baskets.
7. Wash clean all water fountains and coolers.
8. Sweep all private stairways.
Building Standard Lavatories:
1. Sweep and wash all floors, using proper disinfectants.
2. Wash and polish all mirrors, shelves, bright work and enameled
surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Wash all toilet seats.
5. Hand dust and clean all partitions, tile walls, dispensers and
receptacles in lavatories and restrooms.
6. Empty paper receptacles and remove wastepaper.
7. Fill toilet tissue holders. Multi-tenanted floors only.
8. Empty and clean disposal receptacles.
Periodic-as reasonably required
1. Vacuum clean all carpeting and rugs.
2. Dust all doors louvers and other ventilating louvers within a
person's reach.
3. Dust all baseboards.
4. Remove all finger marks from vinyl or painted surfaces near light
switches, entrance doors, etc.
5. Wash all windows.
6. High dust premises complete including the following:
a. Dust all pictures, frames, charts, graphs and similar wall
hangings not reached in nightly cleaning.
b. Dust clean all vertical surfaces, such as walls, partitions,
doors, bucks and other surfaces not reached in nightly
cleaning.
c. Dust all venetian blinds.
7. Clean any employee dining areas and dwyer pantries.
<PAGE>
EXHIBIT "F"
-----------
RULES AND REGULATIONS
1. The rights of tenants with respect to the entrances, corridors,
elevators and escalators of the Building are limited to ingress to and
egress from the tenants' premises for the tenants and their employees,
licensees and invitees, and no tenant shall use, or permit the use of, the
entrances, corridors, escalators or elevators for any other purpose. All
deliveries and shipments of goods and packages shall be through the freight
elevators, and not the passenger elevators. No tenant shall invite to the
tenant's premises, or permit the visit of, persons in such numbers or under
such conditions as to interfere in any material respect with the use and
enjoyment of any of the plazas, entrances, corridors, escalators, elevators
and other facilities of the Building by other tenants. Fire exits and
stairways are for emergency use only, and they shall not be used for any
other purpose by the tenants, their employees, licensees or invitees. No
tenant shall encumber or obstruct, or permit the encumbrance or obstruction
of any of the lobbies, sidewalks, plazas, entrances, corridors, escalators,
elevators, fire exits, stairways or other public portions of the Building.
No door mat of any kind whatsoever shall be placed or left in any public
hall or outside any entry door of any tenant's premises. Landlord reserves
the right to control and operate the public portions of the Building and
the public facilities, as well as facilities furnished for the common use
of the tenants, in such manner as it deems best for the benefit of the
tenants generally.
2. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not
having a pass issued by Landlord or not properly identified, and may
require all persons admitted to or leaving the Building outside of ordinary
business hours to register. Tenant's employees, agents and visitors shall
be permitted to enter and leave the Building whenever appropriate
arrangements have been previously made between Landlord and Tenant with
respect thereto. Each tenant shall be responsible for all persons for whom
the tenant requests such permission, and shall be liable to Landlord for
all acts of such persons. Any person whose presence in the Building at any
time shall, in the judgment of Landlord, be prejudicial to the safety,
character, reputation or interests of the Building or its tenants may be
denied access to the Building or may be ejected therefrom. In case of
invasion, riot, public excitement or other commotion, Landlord may prevent
all access to the Building during the continuance of the same, by closing
the doors or otherwise, for the safety of the tenants and protection of
property in the Building. All removals, or the carrying in or out of any
safes, freight, furniture, packages, boxes, crates or any other object or
matter of any description must take place during such hours and in such
elevators as Landlord may determine from time to time. Landlord reserves
the right to inspect all objects and matter to be brought into the
Building, and to exclude from the Building all objects and matter which
violate any of these Rules and Regulations or the lease of which these
Rules and Regulations are a part. Landlord may require any person leaving
the Building with any package or other object to exhibit a pass from the
tenant from whose premises the package or object is being removed, but the
establishment and enforcement of such requirement shall not impose any
responsibility on Landlord for the protection of any tenant against the
removal of property from the premises of the tenant. Landlord shall in no
way be liable to any tenant for damages or loss arising from the admission,
exclusion or ejection of any person to or from the tenant's premises or the
Building under or despite the provisions of this rule. On days and hours
other than those during which full elevator service is required to be
provided, Landlord may lock all outside Building doors and require use of a
night bell to summon a watchman from his other duties in order to gain
access.
3. No tenant shall obtain or accept for use in its premises food,
beverage, (other than vending machines for Tenant's own use), towel,
barbering, boot blacking, floor polishing, lighting maintenance, cleaning,
or other similar services from any persons not authorized by Landlord in
writing to furnish such services, provided always that the charges for such
services by persons authorized by Landlord are not excessive. Such services
shall be furnished only at such hours, in such places within the tenant's
premises and under such regulations as may be fixed by Landlord.
4. No awnings or other projections over or around the windows shall be
installed by any tenant, and only such window blinds or drapes as are
supplied or permitted by Landlord shall be used in a tenant's premises. No
curtains, blinds, shades or screens shall be attached to or hung in, or
used in connection with, any window or door of a tenant's premises, without
the prior written consent of Landlord. Such curtains, blinds, shades or
screens must be of a quality, type, design and color, and attached in the
manner, approved by Landlord. No tenant shall place objects on the
windowsills which are visible from outside of the Building. No tenant shall
darken, cover or permanently close any windows in the tenant's premises.
5. There shall not be used in any space, or in the public halls of the
Building, either by a tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires, side guards and such other safeguards as Landlord shall require.
6. All entrance doors in each tenant's premises shall be left locked
when the tenant's premises are not in use. Entrance doors shall not be left
open at any time unless the tenant, at its expense, has connected a special
smoke detector system in compliance with all Legal Requirements and
approved by Landlord. The sashes, sash doors, skylights, windows, and doors
that reflect or admit light and air into the halls, passageways or other
public places in the Building shall not be covered or obstructed by any
tenant, nor shall any bottles, parcels, or other articles be placed on the
window sills.
7. No noise, including the playing of any musical instruments, radio
or television, which, in the judgment of Landlord, might disturb other
tenants in the Building shall be made or permitted by any tenant. No tenant
shall throw anything out of the doors, windows or skylights or down the
passageways. Nothing shall be done or permitted in any tenant's premises,
and nothing shall be brought into or kept in any tenant's premises, which
would materially impair or interfere with any of the Building services or
the proper and economic heating, cleaning or other servicing of the
Building or the premises, or the use or enjoyment by any other tenant of
any other premises, nor shall there be installed by any tenant any
ventilating, air-conditioning, electrical or other equipment of any kind
which, in the judgment of Landlord, might cause any such impairment or
interference. No dangerous, inflammable, combustible or explosive object or
material shall be brought into the Building by any tenant or with the
permission of any tenant.
8. Tenants shall not permit any cooking within their premises (unless
consented to in writing by Landlord), except for reheating by microwave of
prepared foods for Tenant's own use, and shall not permit any food odors
emanating within their premises to seep into other portions of the
Building. In the event that Landlord shall consent to any cooking or
installation of kitchen equipment in a tenant's premises, such tenant shall
operate its dining room and kitchen equipment, if any, in a manner that
will prevent odors and smoke from escaping into areas of the Building
outside the premises, and shall, at its expense, (i) install and maintain
appropriate filters and grease traps to prevent accumulation of grease in
any duct, stack or flue used to exhaust fumes and vapors resulting from
such food preparation and to prevent stopping up of the sewerage ejecting
system of the Building if any of same are necessary or are required by any
governmental authority, (ii) keep all range hoods and ducts therefrom, if
any, clean and free of grease at all times so as to avoid fire hazard, and
(iii) clean out the vertical exhaust flue and duct, if any, at least once a
year, or more frequently as conditions require. The discharge of any fumes,
vapors and odors, which, by any Legal Requirement, must be discharged into
a separate stack or flue, will not be permitted unless such tenant, at its
expense, shall provide for such discharge in a proper manner.
9. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the
Building which may damage them. The water and wash closets and other
plumbing fixtures in or serving any tenant's premises shall not be used for
any purpose other than the purpose for which they were designed or
constructed, and no sweepings, rubbish, rags, acids or other foreign
substances shall be deposited therein. All damages resulting from any
misuse of the fixtures shall be borne by the tenant who or whose servants,
employees, agents, visitors or licensees, shall have caused the same.
10. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by a tenant on any part of the
outside or inside of its premises or the Building without the prior written
consent of Landlord. In the event of the violation of the foregoing by a
tenant, Landlord may remove the same without any liability, and may charge
the expense incurred by such removal to the tenant or tenants violating
this rule. Interior signs and lettering on doors shall be inscribed,
painted or affixed for each tenant by Landlord at the expense of such
tenant, and shall be of a size, color and style reasonably acceptable to
Landlord. Landlord shall have the right to prohibit any advertising by any
tenant in or around the Building which refers to the Building and impairs
the reputation of the Building or its desirability as a building for
offices, and, upon written notice from Landlord, such tenant shall refrain
from or discontinue such advertising.
11. Except as otherwise permitted in a tenant's lease, no additional
locks or bolts of any kind shall be placed upon any of the doors or windows
in any tenant's premises, and no lock on any door therein shall be changed
or altered in any respect, unless, in each such case, Landlord shall have
been furnished with a key thereto (or the same shall be operable by
Landlord's master key for the Building). Duplicate keys for a tenant's
premises and toilet rooms shall be procured only from the Landlord, which
may make a reasonable charge therefor. Upon the termination of a tenant's
lease, all keys to the tenant's premises and toilet rooms shall be
delivered to the Landlord, and, in the event of the loss of any keys
furnished by Landlord, such tenant shall pay to Landlord the cost thereof.
12. Except as otherwise permitted in a tenant's lease, no tenant shall
make, paint, drill into, or in any way deface any part of the Building or
the premises demised to such tenant. No boring, cutting or stringing of
wires shall be permitted, except with the prior written consent of
Landlord, and as Landlord may direct. No tenant shall install any resilient
tile or similar floor covering in the premises demised to such tenant,
except in a manner approved by Landlord. Unless and until Landlord may
otherwise direct, no tenant shall lay linoleum, or other similar floor
covering, so that the same shall come in direct contact with the floor of
its premises, and, if linoleum or other similar floor covering is desired
to be used, an interlining of builder's deadening felt shall be first
affixed to the floor, by a paste or other material, soluble in water, the
use of cement or other similar adhesive material being expressly
prohibited.
13. No tenant shall use or occupy, or permit any portion of the
premises demised to such tenant to be used or occupied, as an office for a
public stenographer or typist, or as a barber or manicure shop or as an
employment bureau or for any mail order business. No tenant or occupant
shall engage or pay any employees in the Building, except those actually
working for such tenant or occupant in the Building, nor advertise for
laborers giving an address at the Building. No premises shall be used, or
permitted to be used, at any time, as a store for the sale or display of
goods, wares or merchandise of any kind, or as a restaurant, shop, booth,
bootblack or other stand, or for the conduct of any business or occupation
which predominantly involves direct patronage of the general public in the
premises demised to such tenant, or for manufacturing or for other similar
purposes.
14. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties, unless
under special instructions from the office of the Landlord.
15. Unless Landlord shall be furnishing electricity to the tenant's
premises, each tenant shall, at its expense, provide artificial light and
electricity in the premises demised to such tenant for Landlord's agents,
contractors and employees while performing janitorial or other cleaning
services and making repairs or alterations in said premises.
16. Tenants' employees shall not loiter around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof. No tenant shall allow its premises to be
used for lodging or sleeping, or for any immoral or illegal purposes. No
bicycles, vehicles, animals, fish or birds of any kind shall be brought
into or kept in or about any tenant's premises. Canvassing, soliciting and
peddling in the Building are prohibited, and each tenant shall cooperate to
prevent the same.
17. If the premises demised to any tenant become infested with vermin,
such tenant, at its own cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved by Landlord.
Landlord reserves the right to require that the exterminators generally
employed in the Building be employed, so long as their charges are
reasonable.
18. Any cuspidors or similar containers or receptacles used in any
tenant's premises shall be cared for and cleaned by and at the expense of
the tenant. No showcases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor placed in the
halls, corridors or vestibules. If a tenant's premises shall be an entire
floor, the elevator lobby in the premises shall be kept neat, orderly and
fresh in appearance to Landlord's satisfaction.
19. No tenant shall place a load upon any floor of its premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law.
20. Business machines and mechanical equipment of any tenant which
cause noise, vibration or any other nuisance that may be transmitted to the
structure or other portions of the Building or to premises, to such a
degree as to be reasonably objectionable to Landlord or which interfere
with the use or enjoyment by other tenants of their premises or the public
portions of the Building, shall be placed and maintained by such tenant at
such tenant's own cost and expense, in settings of cork, rubber or spring
type vibration eliminators sufficient to eliminate noise or vibration to
the satisfaction of Landlord.
21. Landlord will, at the request of a tenant, maintain listings on
the Building directory of the name of such tenant and, in the sole
discretion of Landlord, of any other person, firm, association or
corporation lawfully in possession of the premises or any part thereof. The
listing of any name other than that of a tenant, whether on the doors of
the premises, on the Building directory, or otherwise, shall not operate to
vest any right or interest in such tenant's lease or in the premises or be
deemed to be the written consent of Landlord required pursuant to such
tenant's lease, it being expressly understood that any such listing is a
privilege extended by Landlord revocable at will by written notice to such
tenant.
22. No tenant shall move any safe, heavy equipment or bulky matter in
or out of the Building without Landlord's written consent. If the movement
of such items requires special handling, the tenant shall employ only
persons holding a Master Rigger's License to do said work, and all such
work shall be done in full compliance with the Administrative Code of the
City of New York and other municipal requirements. All such movements shall
be made during hours which will least interfere with the normal operations
of the Building, and all damage caused by such movement shall be promptly
repaired by such tenant at such tenant's expense.
23. All moving, shipping and receiving of a tenant's property shall be
through the freight elevator only, and at such times and in such a manner
as Landlord shall designate for the proper operation of the Building. If a
tenant's use of such elevator is after regular business hours, or in such a
manner that requires the supervision of Landlord's employees (of which fact
Landlord shall be the sole judge), such tenant shall pay to Landlord the
cost of furnishing such after hour service and/or supervision. All bulk
deliveries shall be made during non-business hours, at the tenant's cost.
24. Any entrance door or doors leading from a tenant's premises into
the public corridor shall be repaired and/or maintained by such tenant, at
such tenant's own cost and expense, including, without limitation, repair
and maintenance of the enframement and mechanisms of said door(s), whether
such repair or maintenance is caused by any damage by such tenant, its
employees, workmen or contractors, by ordinary wear and tear or otherwise.
25. Landlord reserves the right to rescind, alter or waive any rule or
regulation at any time prescribed for the Building when Landlord deems it
necessary or desirable for the reputation, safety, care of appearance of
the Building, or the preservation of good order therein, or the operation
or maintenance of the Building or the equipment thereof, or the comfort of
tenants or others in the Building. No rescission, alteration or waiver of
any rule or regulation in favor of one tenant shall operate as a
rescission, alteration or waiver in favor of any other tenant.
<PAGE>
EXHIBIT "G"
-----------
FORM OF LETTER OF CREDIT
NO.___________ Date ________________ Irrevocable Letter of Credit
#_______
BENEFICIARY
Broadpine Realty Holding Company, Inc.
c/o J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Dear Sir(s),
We hereby authorize you to value on ___________________________ New York,
New York.
For the account of Broadpine Realty Holding Company, Inc. up to the
aggregate amount of $1,500,000.00.
Available by your drafts at sight, accompanied by your statement,
purportedly signed by one of your authorized officers, partners or agents,
that the amount of your drawing represents funds due and payable under a
certain lease dated as of ____________________, executed by and between
Broadpine Realty Holding Company, Inc., and theglobe.com, inc. f/k/a
WebGenesis, Inc.
This Letter of Credit may be transferred to any transferee of the interest
of the landlord under the lease dated as of ___________________ between
Broadpine Realty Holding Company, Inc., as landlord, and theglobe.com, inc.
f/k/a WebGenesis, Inc. as tenant.
It is a condition of this Letter of Credit that it shall be deemed to be
automatically extended for a period of one year from the present or any
future expiration date, unless we shall notify you by written notice given
by registered mail at least 60 days prior to such expiration date that we
elect not to renew it for such additional period, in which case you shall
have the right to draw on us the full amount of this Letter of Credit by
your sight draft, accompanied by your signed written statement that you are
drawing under Letter of Credit #_______________ because you have received
notice of non-renewal from us, and the accountee is still obligated to you
under the above-referenced lease.
Partial draws are permitted under this Letter of Credit.
All drafts drawn under this Letter of Credit must bear on their face the
clause "Drawn under Letter of Credit No. _________________".
Except so far as otherwise expressly stated, this Letter of Credit is
subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision) International Chamber of Commerce, Publication No. 500.
<PAGE>
EXHIBIT "H"
-----------
REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
14-1782-422
<PAGE>
[Attached, Internal Revenue Service Form W-9]
<PAGE>
EXHIBIT "I"
-----------
APPROVED CONTRACTORS
[LOGO of THE WAEHLER GROUP/Project Management Services]
Date: January 7, 1999
To: David Goldstein
Julien J. Studley
From: Steve Waehler
Re: theglobe.com
120 Broadway
SUBCONTRACTOR LIST
Electrical JRD Electric
HighTech Electric
Forest Electric
Mechanical/HVAC BP Mechanical
Matrix Mechanical
Penquin
Drywall/Acoustic J.P. Phillips
Glenn Partition
Donaldson
Plumbing LAB Plumbing
PAR Plumbing
Ashland Plumbing
Sprinkler ABCO Peerless
National
RAEL
THE WAEHLER GROUP - PROJECT MANAGEMENT SERVICES
155 East 34th Street - New York, NY 10016
Tel: (212) 684-4565 * Fax: (212) 532-7279
<PAGE>
120 Broadway
GENERAL CONTRACTORS
Ambassador Construction Company Jack Shafran
317 Madison Avenue 212-922-1020
New York, NY 10017 FAX - 212-949-9762
Structure Tone, Inc. Patrick Donaghy/John White
15 East 25th Street 212-481-6100
New York, NY 10010-1589 FAX - 212-685-8267
Barney Skanska Construction Co. Ms. Marla J. Glickman
360 Lexington Avenue 212-972-0720
New York, NY 10166 FAX - 212-697-7438
Lehrer McGovern Bovis, Inc. Ms. Tony Mannion
200 Park Avenue (9th floor) 212-582-6751
New York, NY 10166 FAX - 212-582-6988
Morse Diesel International, Inc. Mr. Graeme A. Whitelaw
1633 Broadway 212-484-0497
New York, NY 10019-6708 FAX - 212-484-0580
SUB-CONTRACTORS
- ---------------
ELECTRICIANS
Robert B. Samuels Al Fishbone
352 Park Avenue South 212-686-6700
New York, NY 10010 FAX - 212-213-4089
Campbell & Dawes, Ltd. Gary Dawes
86-02 57th Avenue 718-651-4433
Elmhurst, NY 11373 FAX - 718-899-1213
Forest Electric Corporation Phillip Altheim
370 Seventh Avenue 212-594-4110
New York, NY 11101 FAX 212-318-1793
S.P.B. Electrical Contractors Sean Burke
480 Canal Street - Suite 208 212-714-0270
New York, NY 10013 FAX - 212-714-0408
Artic Electric Corporation Ken Ashendorf
132 West 22nd Street 212-255-6830
New York, NY 10011 FAX - 212-627-1549
MECHANICAL
Kaback Enterprises, Inc. John Murphy/Vance Schipani
41 West 25th Street 212-645-5100
New York, NY 10016 FAX - 212-645-8962
Penquin Air Conditioning Paul Shields
26 West Street 718-706-2558
Brooklyn, NY 11222 FAX - 718-706-2565
Power Cooling, Inc. Lloyd Larsen
43-43 Vernon Blvd. 718-784-1300
Long Island City, NY 11101 FAX - 718-937-8418
Hennrick Lane Ernie Hennrick
49-22 9th Street 718-786-7277
Long Island City, NY 11101 FAX - 718-482-1625
PLUMBERS
MJM Plumbing & Heating Company, Inc. Michael Carbone
268 West Street 212-966-2444
New York, NY 10013 FAX - 212-966-0031
American Contracting Company, Inc. Richard Silver
538 West 35th Street 212-736-6618
New York, NY 10001 FAX - 212 465-1734
S.B.A. Steven Verderame
23-30 50th Avenue 718-785-1100
Long Island City, NY 11101 FAX - 718-361-5327
Par Planning Company, Inc. Marty Levine
60 North Prospect Avenue 212-926-1088
Lynnbrook, NY 11563 FAX - 516-593-9089
<PAGE>
EXHIBIT "J"
-----------
BUILDING HOLIDAYS
New Year's Day Columbus Day
Washington's Birthday Thanksgiving Day
Good Friday Day after Thanksgiving
Memorial Day Christmas Day
Independence Day Employee's Birthday
Martin Luther King's Birthday or Yom Kippur at the option of the
employee.
<PAGE>
EXHIBIT "K"
-----------
FIRST 30th FLOOR OFFER SPACE
<PAGE>
[Floor plan for 30th floor at 120 Broadway]
<PAGE>
EXHIBIT "L"
15th FLOOR SPACE
<PAGE>
[Floor plan of the 15th floor at 120 Broadway]
<PAGE>
EXHIBIT "M"
-----------
12TH FLOOR OFFER SPACE
<PAGE>
[Floor plan for the 12th floor at 120 Broadway]
<PAGE>
EXHIBIT "N"
-----------
SECOND 30th FLOOR OFFER SPACE
<PAGE>
[Floor plan for the 30th floor at 120 Broadway]
<PAGE>
EXHIBIT "O"
-----------
30th/31st FLOOR OFFER SPACE
<PAGE>
[Floor plan for 31st floor at 120 Broadway]
[Floor plan for 30th floor at 120 Broadway]
<PAGE>
EXHIBIT "P"
-----------
21st FLOOR OFFER SPACE
<PAGE>
[Floor plan for 21st floor at 120 Broadway]
EXHIBIT 10.7
theglobe.com,inc.
1998 STOCK OPTION PLAN
As Adopted July 15 , 1998
<PAGE>
theglobe.com,inc.
1998 STOCK OPTION PLAN
1. Purpose.
-------
The purpose of this Plan is to strengthen theglobe.com, inc., a
Delaware corporation (the "Company"), by providing an incentive to its
employees, officers, consultants and directors and thereby encouraging them
to devote their abilities and industry to the success of the Company's
business enterprise. It is intended that this purpose be achieved by
extending to employees (including future employees who have received a
formal written offer of employment), officers, consultants and directors of
the Company and its Subsidiaries an added long-term incentive for high
levels of performance and extraordinary efforts through the grant of
Incentive Stock Options and Nonqualified Stock Options (as each term is
herein defined).
2 Definitions.
-----------
For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a Change
in Control, the greater of (a) the highest price per Share paid to holders
of the Shares in any transaction (or series of transactions) constituting
or resulting in a Change in Control or (b) the highest Fair Market Value of
a Share during the ninety (90) day period ending on the date of a Change in
Control.
2.2 "Affiliate" means any entity, directly or indirectly,
controlled by, controlling or under common control with the Company or any
corporation or other entity acquiring, directly or indirectly, all or
substantially all the assets and business of the Company, whether by
operation of law or otherwise.
2.3 "Agreement" means the written agreement between the Company
and an Optionee evidencing the grant of an Option and setting forth the
terms and conditions thereof.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" means:
(a) for purposes of Section 6.4, the commission of an act of
fraud or intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the Company or
any of its Subsidiaries; and
(b) in the case of an Optionee whose employment with the
Company or a Subsidiary is subject to the terms of an employment agreement
between such Optionee and the Company or Subsidiary, which employment
agreement includes a definition of "Cause", the term "Cause" as used in the
Plan or any Agreement shall have the meaning set forth in such employment
agreement during the period that such employment agreement remains in
effect; and
(c) in all other cases, (i) intentional failure to perform
reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) involvement in a transaction in connection
with the performance of duties to the Company or any of its Subsidiaries
which transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit or (iv) willful
violation of any law, rule or regulation in connection with the performance
of duties (other than traffic violations or similar offenses).
2.6 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, but not limited to, in the
case of a spin-off, dividend or other distribution in respect of Shares, a
change in value) in the Shares or exchange of Shares for a different number
or kind of shares or other securities of the Company or another
corporation, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, issuance of warrants or
rights or debentures, stock dividend, stock split or reverse stock split,
cash dividend, property dividend, combination or exchange of shares,
repurchase of shares, change in corporate structure or otherwise.
2.7 A "Change in Control" shall mean the occurrence of any of the
following:
(a) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d)
of the Exchange Act), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of thirty percent (30%) or more of the then outstanding Shares or the
combined voting power of the Company's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has occurred
pursuant to this Section 2.7(a), Shares or Voting Securities which are
acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee
benefit plan (or a trust forming a part thereof) maintained by (A) the
Company or (B) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (for purposes of this definition, a
"Majority-Owned Subsidiary"), (ii) the Company or its Majority-Owned
Subsidiaries, or (iii) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined);
(b) The individuals who, as of date plan is adopted are
members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the members of the Board; provided,
however, that if the election, or nomination for election by the Company's
common stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
the Plan, be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization with or
into the Company or in which securities of the Company are issued, unless
such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Company or in which
securities of the Company are issued where:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting power
of the outstanding voting securities of the corporation resulting from such
merger or consolidation or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at
least two-thirds of the members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or indirectly owning a
majority of the Voting Securities of the Surviving Corporation, and
(C) no Person other than (1) the Company, (2) any
Majority-Owned Subsidiary, (3) any employee benefit plan (or any trust
forming a part thereof) that, immediately prior to such merger,
consolidation or reorganization, was maintained by the Company or any
Majority-Owned Subsidiary, or (4) any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of thirty
percent (30%) or more of the then outstanding Voting Securities or Shares,
has Beneficial Ownership of thirty percent (30%) or more of the combined
voting power of the Surviving Corporation's then outstanding voting
securities or its common stock.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Majority-Owned Subsidiary or the distribution to the
Company's stockholders of the stock of a Majority-Owned Subsidiary or any
other assets).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then
outstanding Shares or Voting Securities as a result of the acquisition of
Shares or Voting Securities by the Company which, by reducing the number of
Shares or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons, provided that
if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Shares or Voting Securities by the
Company, and after such share acquisition by the Company, the Subject
Person becomes the Beneficial Owner of any additional Shares or Voting
Securities which increases the percentage of the then outstanding Shares or
Voting Securities Beneficially Owned by the Subject Person, then a Change
in Control shall occur.
If an Eligible Individual's employment is terminated by the
Company without Cause prior to the date of a Change in Control but the
Eligible Individual reasonably demonstrates that the termination (A) was at
the request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a change in control or (B) otherwise arose
in connection with, or in anticipation of, a Change in Control which has
been threatened or proposed, such termination shall be deemed to have
occurred after a Change in Control for purposes of the Plan provided a
Change in Control shall actually have occurred.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
2.9 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to
perform the functions set forth herein.
2.10 "Community Leader" means an individual participating in the
formation and dissemination of content on the Company's web site and who
manages communities on the web site, highlights member content,
communicates directly to members and organizes events, as determined from
time to time in the Company's sole discretion.
2.11 "Company" means theglobe.com, inc., a Delaware corporation.
2.12 "Consultant" means any consultant or advisor that qualifies
as an "employee" within the meaning of rules applicable to Form S-8, as in
effect from time to time, of the Securities Act of 1933, as amended.
2.12 "Director" means a director of the Company.
2.13 "Disability" means:
(a) in the case of an Optionee whose employment with the
Company or a Subsidiary is subject to the terms of an employment agreement
between such Optionee and the Company or Subsidiary, which employment
agreement includes a definition of "Disability", the term "Disability" as
used in the Plan or any Agreement shall have the meaning set forth in such
employment agreement during the period that such employment agreement
remains in effect; and
(b) in all other cases, the term "Disability" as used in the
Plan or any Agreement shall mean a physical or mental infirmity which
impairs the Optionee's ability to perform substantially his or her duties
for a period of one hundred eighty (180) consecutive days.
2.14 "Division" means any of the operating units or divisions of
the Company designated as a Division by the Committee.
2.15 "Eligible Director" means a director of the Company who does
not perform services as, or have the responsibilities of, an employee or
officer, and who does not receive compensation or other consideration from
the Company or any Subsidiary, other than in his or her capacity as a
director.
2.16 "Eligible Individual" means any of the following
individuals: (a) any director, officer or employee of the Company or a
Subsidiary, (b) any individual to whom the Company or a Subsidiary has
extended a formal, written offer of employment, or (c) any Consultant.
2.17 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.18 "Fair Market Value" on any date means the closing sales
prices of the Shares on such date on the principal national securities
exchange on which such Shares are listed or admitted to trading, or, if
such Shares are not so listed or admitted to trading, the average of the
per Share closing bid price and per Share closing asked price on such date
as quoted on the National Association of Securities Dealers Automated
Quotation System or such other market in which such prices are regularly
quoted, or, if there have been no published bid or asked quotations with
respect to Shares on such date, the Fair Market Value shall be the value
established by the Board in good faith and, in the case of an Incentive
Stock Option, in accordance with Section 422 of the Code.
2.19 "Formula Option" means an Option granted pursuant to Section
6.
2.20 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as
an Incentive Stock Option.
2.21 "Nonemployee Director" means a director of the Company who
is a "nonemployee director" within the meaning of Rule 16b-3 promulgated
under the Exchange Act.
2.22 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.23 "Option" means a Nonqualified Stock Option, an Incentive
Stock Option, a Formula Option, or any or all of them.
2.24 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.25 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.26 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the
Company.
2.27 "Performance-Based Compensation" means any Option that is
intended to constitute "performance-based compensation" within the meaning
of Section 162(m)(4)(C) of the Code and the regulations promulgated
thereunder.
2.28 "Permitted Transferee" means an Optionee's immediate family,
trusts solely for the benefit of such family members and partnerships in
which such family members and/or trusts are the only partners. For this
purpose, "immediate family" of an Optionee means the Optionee's spouse,
parents, children, stepchildren and grandchildren and the spouses of such
parents, children, stepchildren and grandchildren.
2.29 "Plan" means this theglobe.com, inc. 1998 Stock Option Plan,
as amended from time to time.
2.30 "Pooling Transaction" means an acquisition of the Company in
a transaction which is intended to be treated as a "pooling of interests"
under generally accepted accounting principles.
2.31 "Shares" means the Common Stock, par value $0.001 per share,
of the Company.
2.32 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect
to the Company.
2.33 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a)
of the Code applies.
2.34 "Ten-Percent Stockholder" means an Eligible Individual, who,
at the time an Incentive Stock Option is to be granted to him or her, owns
(within the meaning of Section 422(b)(6) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, or of a Parent or a Subsidiary.
3. Administration.
--------------
3.1 The Plan shall be administered by the Committee, which shall
hold meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of its
meetings. A quorum shall consist of not fewer than two (2) members of the
Committee and a majority of a quorum may authorize any action. Any decision
or determination reduced to writing and signed by a majority of all of the
members of the Committee shall be as fully effective as if made by a
majority vote at a meeting duly called and held. The Committee shall
consist of at least two (2) Directors and may consist of the entire Board;
provided, however, that (A) if the Committee consists of less than the
entire Board, each member shall be a Nonemployee Director and (B) to the
extent necessary for any Option intended to qualify as Performance-Based
Compensation to so qualify, each member of the Committee, whether or not it
consists of the entire Board, shall be an Outside Director. For purposes of
the preceding sentence, if one or more members of the Committee is not a
Nonemployee Director and an Outside Director but recuses himself or herself
or abstains from voting with respect to a particular action taken by the
Committee, then the Committee, with respect to that action, shall be deemed
to consist only of the members of the Committee who have not recused
themselves or abstained from voting.
3.2 No member of the Committee shall be liable for any action,
failure to act, determination or interpretation made in good faith with
respect to the Plan or any transaction hereunder. The Company hereby agrees
to indemnify each member of the Committee for all costs and expenses and,
to the extent permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiating for the
settlement of or otherwise dealing with any claim, cause of action or
dispute of any kind arising in connection with any actions in administering
the Plan or in authorizing or denying authorization to any transaction
hereunder.
3.3 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Options
shall be granted under the Plan and the number of such Options to be
granted and to prescribe the terms and conditions (which need not be
identical) of each such Option, including the exercise price per Share
subject to each Option, and make any amendment or modification to any
Agreement consistent with the terms of the Plan;
(b) to construe and interpret the Plan and any Agreements
granted hereunder and to establish, amend and revoke rules and regulations
for the administration of the Plan, including, but not limited to,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the
extent it shall deem necessary or advisable, including so that the Plan
complies with Rule 16b-3 under the Exchange Act, the Code to the extent
applicable and other applicable law, and otherwise to make the Plan fully
effective. All decisions and determinations by the Committee in the
exercise of this power shall be final, binding and conclusive upon the
Company, its Subsidiaries, the Optionees, and all other persons having any
interest therein;
(c) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee on an individual basis without
constituting a termination of employment or service for purposes of the
Plan;
(d) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of
the Company with respect to the Plan.
4. Stock Subject to the Plan; Grant Limitations.
--------------------------------------------
4.1 The maximum number of Shares that may be made the subject of
Options granted under the Plan is one million two hundred thousand
(1,200,000). The maximum number of Shares that may be the subject of
Options granted to any Eligible Individual during any three (3) consecutive
calendar year period may not exceed 250,000 Shares. Upon a Change in
Capitalization, the maximum number of Shares referred to in the first two
sentences of this Section 4.1 shall be adjusted in number and kind pursuant
to Section 10. The Company shall reserve for the purposes of the Plan, out
of its authorized but unissued Shares or out of Shares held in the
Company's treasury, or partly out of each, such number of Shares as shall
be determined by the Board.
4.2 Upon the granting of an Option, the number of Shares
available under Section 4.1 for the granting of further Options shall be
reduced by the number of Shares in respect of which the Option is granted;
provided, however, that if any Option is exercised by tendering Shares,
either actually or by attestation, to the Company as full or partial
payment of the exercise price, the maximum number of Shares available under
Section 4.1 shall be increased by the number of Shares so tendered.
4.3 Whenever any outstanding Option or portion thereof expires,
is canceled, is settled in cash (including the settlement of tax
withholding obligations using Shares) or is otherwise terminated for any
reason without having been exercised or payment having been made in respect
of the entire Option, the Shares allocable to the expired, canceled,
settled or otherwise terminated portion of the Option may again be the
subject of Options granted hereunder.
5. Option Grants for Eligible Individuals.
--------------------------------------
5.1 Authority of Committee. Subject to the provisions of the
Plan, the Committee shall have full and final authority to select those
Eligible Individuals who will receive Options, and the terms and conditions
of the grant to such Eligible Individuals shall be set forth in an
Agreement.
5.2 Exercise Price. The purchase price or the manner in which the
exercise price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; provided,
however, that the exercise price per Share under each Incentive Stock
Option shall not be less than 100% of the Fair Market Value of a Share on
the date the Option is granted (110% in the case of an Incentive Stock
Option granted to a Ten-Percent Stockholder).
5.3 Maximum Duration. Options granted hereunder shall be for such
term as the Committee shall determine, provided that an Incentive Stock
Option shall not be exercisable after the expiration of ten (10) years from
the date it is granted (five (5) years in the case of an Incentive Stock
Option granted to a Ten-Percent Stockholder) and a Nonqualified Stock
Option shall not be exercisable after the expiration of ten (10) years from
the date it is granted; provided, however, that the Committee may provide
that an Option (other than an Incentive Stock Option) may, upon the death
of the Optionee, be exercised for up to one (1) year following the date of
the Optionee's death even if such period extends beyond ten (10) years from
the date the Option is granted. The Committee may, subsequent to the
granting of any Option, extend the term thereof, but in no event shall the
term as so extended exceed the maximum term provided for in the preceding
sentence.
5.4 Vesting. Subject to Section 7.4, each Option shall become
exercisable in such installments (which need not be equal) and at such
times as may be designated by the Committee and set forth in the Agreement.
To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable,
but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option or portion thereof at any time.
5.5 Deferred Delivery of Option Shares. The Committee may, in its
discretion, permit Optionees to elect to defer the issuance of Shares upon
the exercise of one or more Nonqualified Stock Options granted pursuant to
the Plan. The terms and conditions of such deferral shall be determined at
the time of the grant of the Option or thereafter and shall be set forth in
the Agreement evidencing the grant.
5.6 Limitations on Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined as of the date of the grant) of
Shares with respect to which Incentive Stock Options granted under the Plan
and "incentive stock options" (within the meaning of Section 422 of the
Code) granted under all other plans of the Company or its Subsidiaries (in
either case determined without regard to this Section 5.6) are exercisable
by an Optionee for the first time during any calendar year exceeds
$100,000, such Incentive Stock Options shall be treated as Nonqualified
Stock Options. In applying the limitation in the preceding sentence in the
case of multiple Option grants, Options which were intended to be Incentive
Stock Options shall be treated as Nonqualified Stock Options according to
the order in which they were granted such that the most recently granted
Options are first treated as Nonqualified Stock Options.
6. Option Grants for Nonemployee Directors.
---------------------------------------
6.1 Grant. Formula Options shall be granted to Eligible Directors
as follows:
(a) Initial Grant for Current Eligible Directors. Each
person who is an Eligible Director as of July 15, 1998, shall, as of such
date, be granted a Formula Option in respect of 25,000 Shares.
(b) Initial Grant for Subsequent Eligible Directors. Each
Eligible Director who becomes a Director for the first time after July 15,
1998 and while this Plan is in effect, shall, upon becoming a Director, be
granted a Formula Option in respect of 12,500 Shares.
(c) Annual Grant. Each Eligible Director shall be granted a
Formula Option in respect of 3,750 Shares on the first business day after
the annual meeting of the stockholders of the Company in each year that the
Plan is in effect provided that the Eligible Director is a Director on such
date.
All Formula Options shall be evidenced by an Agreement containing
such other terms and conditions not inconsistent with the provisions of the
Plan as determined by the Board; provided, however, that such terms shall
not vary the price, amount or timing of Formula Options provided under this
Section 6, including provisions dealing with vesting, forfeiture and
termination of such Formula Options.
6.2 Purchase Price. The purchase price for Shares under each
Formula Option shall be equal to 100% of the Fair Market Value of such
Shares on the date the Formula Option is granted.
6.3 Vesting. Subject to Section 7.4, (i) each Formula Option
granted pursuant to Section 6.1(a) above to a person who was also a
Director as of August 13, 1997, shall be fully vested and exercisable with
respect to 25% of the Shares subject thereto as of the date of grant, and
with respect to an incremental 25% of the Shares subject thereto on each of
the first three (3) anniversaries of the date of grant, and (ii) each other
Formula Option granted pursuant to this Section 6 shall become fully vested
and exercisable with respect to an incremental 25 % of the Shares subject
thereto on each of the first four anniversaries of the date of grant;
provided, however, in each case, that the Optionee continues to serve as a
Director as of such date of vesting. Notwithstanding the foregoing (i) if
an Optionee's service as a Director terminates for any reason, other than
for Cause, then each Formula Option held by such Optionee shall become
fully and immediately vested and exercisable as of such date of termination
and (ii) if an Optionee's service as a Director terminates for Cause, then
each Formula Option held by such Optionee, whether or not then vested and
exercisable, shall immediately terminate and the Optionee shall have no
further rights in such Formula Option as of such date of termination.
6.4 Duration. Subject to Section 7.4, each Formula Option shall
terminate on the date which is the tenth anniversary of the date of grant
(or if later, the first anniversary of the date of the Director's death if
such death occurs prior to such tenth anniversary), unless terminated
earlier as follows:
(a) If an Optionee's service as a Director terminates for
any reason other than for Cause, the Optionee (or in the event of death, by
the person or persons to whom such rights shall pass by will or the laws of
descent or distribution) may for a period of two (2) years after such
termination exercise his or her Formula Option, after which time the
Formula Option shall automatically terminate in full.
(b) If an Optionee's service as a Director terminates for
Cause, the Formula Option granted to the Optionee hereunder shall
immediately terminate in full and no rights thereunder may be exercised.
7. Terms and Conditions Applicable to All Options.
----------------------------------------------
7.1 Non-Transferability. No Option shall be transferable by the
Optionee otherwise than by will or by the laws of descent and distribution
or, in the case of an Option other than an Incentive Stock Option, pursuant
to a domestic relations order (within the meaning of Rule 16a-12
promulgated under the Exchange Act), and an Option shall be exercisable
during the lifetime of such Optionee only by the Optionee or his or her
guardian or legal representative. Notwithstanding the foregoing, the
Committee may set forth in the Agreement evidencing an Option (other than
an Incentive Stock Option) at the time of grant or thereafter, that the
Option may be transferred to a Permitted Transferee, and for purposes of
the Plan, such Permitted Transferee shall be deemed to be the Optionee. The
terms of an Option shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the
Optionee.
7.2 Method of Exercise. The exercise of an Option shall be made
only by a written notice delivered in person or by mail to the Secretary of
the Company at the Company's principal executive office, specifying the
number of Shares to be exercised and, to the extent applicable, accompanied
by payment therefor and otherwise in accordance with the Agreement pursuant
to which the Option was granted. The exercise price for any Shares
purchased pursuant to the exercise of an Option shall be paid, as
determined by the Committee in its discretion, in either of the following
forms (or any combination thereof): (a) cash or (b) the transfer, either
actually or by attestation, to the Company of Shares upon such terms and
conditions as determined by the Committee. In addition, Options may be
exercised through a registered broker-dealer pursuant to such cashless
exercise procedures which are, from time to time, deemed acceptable by the
Committee. Any Shares transferred to the Company (or withheld upon
exercise) as payment of the exercise price under an Option shall be valued
at their Fair Market Value on the day preceding the date of exercise of
such Option. If requested by the Committee, the Optionee shall deliver the
Agreement evidencing the Option to the Secretary of the Company who shall
endorse thereon a notation of such exercise and return such Agreement to
the Optionee. No fractional Shares (or cash in lieu thereof) shall be
issued upon exercise of an Option and the number of Shares that may be
purchased upon exercise shall be rounded to the nearest number of whole
Shares.
7.3 Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and
until (a) the Option shall have been exercised pursuant to the terms
thereof, (b) the Company shall have issued and delivered Shares to the
Optionee, and (c) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with respect to
such Shares, subject to such terms and conditions as may be set forth in
the applicable Agreement.
7.4 Effect of Change in Control. In the event of a Change in
Control, all Options outstanding on the date of such Change in Control
shall become immediately and fully exercisable. In addition, to the extent
set forth in an Agreement evidencing the grant of an Option, an Optionee
will be permitted to surrender to the Company for cancellation within sixty
(60) days after such Change in Control any Option or portion of an Option
to the extent not yet exercised and the Optionee will be entitled to
receive a cash payment in an amount equal to the excess, if any, of (a) (i)
in the case of a Nonqualified Stock Option, the greater of (A) the Fair
Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered or (B) the Adjusted
Fair Market Value of the Shares subject to the Option or portion thereof
surrendered or (ii) in the case of an Incentive Stock Option, the Fair
Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered, over (b) the
aggregate exercise price for such Shares under the Option or portion
thereof surrendered. In the event an Optionee's employment with, or service
as a Director of, the Company and its Subsidiaries terminates following a
Change in Control, each Option held by the Optionee that was exercisable as
of the date of termination of the Optionee's employment or service shall,
notwithstanding any shorter period set forth in the Agreement evidencing
the Option, remain exercisable for a period ending not before the earlier
of (x) the first anniversary of the termination of the Optionee's
employment or service or (y) the expiration of the stated term of the
Option.
8. Stock Bonus for Community Leaders.
---------------------------------
The Committee may grant Shares to Community Leaders from time to
time. The Community Leaders to whom Shares shall be granted, and the number
of Shares so granted, shall be determined by the Committee in its sole
discretion. Any Shares granted under this Section 8 shall be without
consideration to the Company and shall be fully and immediately vested upon
grant.
9. Effect of a Termination of Employment.
-------------------------------------
The Agreement evidencing the grant of each Option shall set forth
the terms and conditions applicable to such Option upon a termination or
change in the status of the employment of the Optionee by the Company or a
Subsidiary or a Division (including a termination or change by reason of
the sale of a Subsidiary or a Division), which, except for Director
Options, shall be as the Committee may, in its discretion, determine at the
time the Option is granted or thereafter.
10. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) In the event of a Change in Capitalization, the
Committee shall conclusively determine the appropriate adjustments, if any,
to (i) the maximum number and class of Shares or other stock or securities
with respect to which Options may be granted under the Plan, (ii) the
maximum number and class of Shares or other stock or securities with
respect to which Options may be granted to any Eligible Individual during
any three (3) consecutive calendar year period, (iii) the number and class
of Shares or other stock or securities which are subject to outstanding
Options granted under the Plan and the exercise price therefor, if
applicable and (iv) the number and class of Shares or other securities in
respect of which Director Options are to be granted under Section 6.
(b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options (including any
adjustments in the exercise price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and
only to the extent otherwise permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, an Optionee
shall be entitled to exercise an Option with respect to new, additional or
different shares of stock or securities, such new, additional or different
shares shall thereupon be subject to all of the conditions, restrictions
and performance criteria which were applicable to the Shares subject to the
Option prior to such Change in Capitalization.
11. Effect of Certain Transactions.
------------------------------
Subject to Section 7.4 or as otherwise provided in an Agreement,
in the event of (a) the liquidation or dissolution of the Company or (b) a
merger or consolidation of the Company (a "Transaction"), the Plan and the
Options issued hereunder shall continue in effect in accordance with their
respective terms, except that following a Transaction each Optionee shall
be entitled to receive in respect of each Share subject to any outstanding
Options, upon exercise of any Option, the same number and kind of stock,
securities, cash, property or other consideration that each holder of a
Share was entitled to receive in the Transaction in respect of a Share;
provided, however, that such stock, securities, cash, property, or other
consideration shall remain subject to all of the conditions, restrictions
and performance criteria which were applicable to the Options prior to such
Transaction.
12. Interpretation.
--------------
(a) The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act and the Committee shall interpret and
administer the provisions of the Plan or any Agreement in a manner
consistent therewith. Any provisions inconsistent with such rule shall be
inoperative and shall not affect the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant
Agreement, each Option (other than Formula Options) granted under the Plan
is intended to be Performance-Based Compensation. The Committee shall not
be entitled to exercise any discretion otherwise authorized hereunder with
respect to such Options if the ability to exercise such discretion or the
exercise of such discretion itself would cause the compensation
attributable to such Options to fail to qualify as Performance-Based
Compensation.
13. Pooling Transactions.
--------------------
Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event of a Change in Control which is also intended
to constitute a Pooling Transaction, the Committee shall take such actions,
if any, as are specifically recommended by an independent accounting firm
retained by the Company to the extent reasonably necessary in order to
assure that the Pooling Transaction will qualify as such, including but not
limited to (a) deferring the vesting, exercise, payment, settlement or
lapsing of restrictions with respect to any Option, (b) providing that the
payment or settlement in respect of any Option be made in the form of cash,
Shares or securities of a successor or acquirer of the Company, or a
combination of the foregoing, and (c) providing for the extension of the
term of any Option to the extent necessary to accommodate the foregoing,
but not beyond the maximum term permitted for any Option.
14. Termination and Amendment of the Plan or Modification of Options.
----------------------------------------------------------------
14.1 Plan Amendment or Termination. The Plan shall terminate on
the day preceding the tenth anniversary of the date of its adoption by the
Board and no Option may be granted thereafter. The Board may sooner
terminate the Plan and the Board may at any time and from time to time
amend, modify or suspend the Plan; provided, however, that:
(a) no such amendment, modification, suspension or
termination shall impair or adversely alter any Options theretofore granted
under the Plan, except with the consent of the Optionee, nor shall any
amendment, modification, suspension or termination deprive any Optionee of
any Shares which he or she may have acquired through or as a result of the
Plan; and
(b) to the extent necessary under any applicable law,
regulation or exchange requirement, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable
law, regulation or exchange requirement.
14.2 Modification of Options. No modification of an Option shall
adversely alter or impair any rights or obligations under the Option
without the consent of the Optionee.
15. Non-Exclusivity of the Plan.
---------------------------
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive
arrangement or as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or
only in specific cases.
16. Limitation of Liability.
-----------------------
As illustrative of the limitations of liability of the Company,
but not intended to be exhaustive thereof, nothing in the Plan shall be
construed to:
(a) give any person any right to be granted an Option other
than at the sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
(c) limit in any way the right of the Company or any
Subsidiary to terminate the employment or service of any person at any
time; or
(d) be evidence of any agreement or understanding, expressed
or implied, that the Company will employ any person at any particular rate
of compensation or for any particular period of time.
17. Regulations and Other Approvals; Governing Law.
----------------------------------------------
17.1 Except as to matters of federal law, the Plan and the rights
of all persons claiming hereunder shall be construed and determined in
accordance with the laws of the State of Delaware without giving effect to
conflicts of laws principles thereof.
17.2 The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal
and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Committee.
17.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock
Options the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
17.4 Each Option is subject to the requirement that, if at any
time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option
or the issuance of Shares, no Options shall be granted or payment made or
Shares issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained free of
any conditions as acceptable to the Committee.
17.5 Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event that the disposition of Shares
acquired pursuant to the Plan is not covered by a then current registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), and is not otherwise exempt from such registration, such Shares
shall be restricted against transfer to the extent required by the
Securities Act and Rule 144 or other regulations thereunder. The Committee
may require any individual receiving Shares pursuant to an Option granted
under the Plan, as a condition precedent to receipt of such Shares, to
represent and warrant to the Company in writing that the Shares acquired by
such individual are acquired without a view to any distribution thereof and
will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption applicable
under the Securities Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted securities as
aforesaid.
18. Miscellaneous.
-------------
18.1 Multiple Agreements. The terms of each Option may differ
from other Options granted under the Plan at the same time, or at some
other time. The Committee may also grant more than one Option to a given
Eligible Individual during the term of the Plan, either in addition to, or
in substitution for, one or more Options previously granted to that
Eligible Individual.
18.2 Withholding of Taxes.
(a) At such times as an Optionee recognizes taxable income
in connection with the receipt of Shares hereunder (a "Taxable Event"), the
Optionee shall pay to the Company an amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be
withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance of such Shares. The Company
shall have the right to deduct from any payment of cash to an Optionee an
amount equal to the Withholding Taxes in satisfaction of the obligation to
pay Withholding Taxes. The Committee may provide in the Agreement, at the
time of grant or at any time thereafter, that the Optionee, in satisfaction
of the obligation to pay Withholding Taxes, may elect to have withheld a
portion of the Shares then issuable to him or her having an aggregate Fair
Market Value equal to the Withholding Taxes.
(b) If an Optionee makes a disposition, within the meaning
of Section 424(c) of the Code and regulations promulgated thereunder, of
any Share or Shares issued to such Optionee pursuant to the exercise of an
Incentive Stock Option within the two-year period commencing on the day
after the date of the grant or within the one-year period commencing on the
day after the date of transfer of such Share or Shares to the Optionee
pursuant to such exercise, the Optionee shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written notice to
the Company at its principal executive office.
18.3 Effective Date. The effective date of the Plan shall be as
determined by the Board, subject only to the approval by the affirmative
vote of the holders of a majority of the securities of the Company present,
or represented, and entitled to vote at a meeting of stockholders duly held
in accordance with the applicable laws of the State of Delaware within
twelve (12) months of the adoption of the Plan by the Board.
EXHIBIT 10.11
AGREEMENT NO. EFFECTIVE DATE OCTOBER 31ST, 1998
--------
----------
LICENSE AGREEMENT
BETWEEN:
Engage Technologies, Inc. AND: Legal Company Name: theGlobe.com
100 Brickstone Square Contact Person: Will Margiloff
Andover, MA 01801 Address: 31 West 21st Street, 6th Floor,
NY, NY 10010
("ENGAGE") Telephone: 1-212-886-0837
Fax: 1-212-367-8603
email: [email protected]
("CUSTOMER")
Customer contracts for and Engage agrees to provide, on the terms and
conditions set forth in this License Agreement ("Agreement"), the product
selections identified below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SELECTIONS RECURRING FEE ONE-TIME FEE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
BASE PRODUCTS:
Specify Tier for each: Lite, Standard, Gold, Platinum
or Platinum Plus (for Platinum Plus specify Maximum Average
Daily Page Requests or Ads Served)
Tier Upgrade
- ------------------------------------------ -------
AdManager (Attachment A) _______ $___________ $_________
DSServer (Attachment B) _______ $___________ $_________
____ Additional Seats of Marketing Workbench $___________ $_________
____ Additional Seats of Business Objects $___________ $_________
ProfileServer (Attachment C) _______ $___________ $_________
LICENSE TERM:
Perpetual Subscription Pilot
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
PROFILE OPTIONS:
Specify Tier for each: Lite, Standard, Gold, Platinum or
Platinum Plus (for Platinum Plus specify Maximum Average
Daily Page Requests or Ads Served)
Local Declared Tier Local Behavior Tier
-------------- ---- -------------- ----
AdManager ________ AdManager ________ $_________(mo.)
DSServer ________ DSServer ________ $_________(mo.)
ProfileServer ________ ProfileServer ________ $_________(mo.)
Global Behavior (Attachment D)
------ --------
AdManager ________
$_________(qtr.)
ProfileServer Usage Based Fee
$_________(mo.)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
SOFTWARE MAINTENANCE AND SUPPORT SERVICES (Attachment E):
Standard Premium
$_________ $___________
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OTHER SERVICES (Attachment F):
Installation (8 days installation)
Training $___________ $___________
Public Class $___________ $___________
On Site (3 days of training defined as follows: Two (2) $___________ $___________
days of AdManager for up to 5 Customer employees, 1/2 day of DSS $___________ $___________
and 1/2 day of Profile Server for up to 3 Customer employees) $___________ $___________
Consulting # of days
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
GEOGRAPHIC USE: _________________ (specify country) Factored Into Factored Into
NUMBER OF ENTERPRISE SERVERS OR ENGINES: ______ Above Fees Above Fees
DOMAIN NAMES:
- -----------------------------------------------------------------------------------------------------
CUSTOMER ACKNOWLEDGES THAT THE ATTACHMENTS MARKED WITH AN "X" ABOVE (AND
ONLY THOSE ATTACHMENTS) ARE INCORPORATED INTO AND FORM PART OF THIS
AGREEMENT, AND THAT THE GENERAL TERMS AND CONDITIONS APPLY TO ALL
ATTACHMENTS OF THIS AGREEMENT. THIS AGREEMENT IS NOT VALID UNTIL ACCEPTED
BY ENGAGE. ENGAGE: CUSTOMER: Initials Initials
Engage:___ Customer:_____
Initials Initials
</TABLE>
<PAGE>
Pricing Options:
Platinum Plus:
Up to Average Daily Ads Served or Page Requests
Average Daily Ads Served or Page
Requests:
There would be a one-time cost of an additional for each
of the AdManager and Profile Server
Software and no additional cost for DSS. Total additional cost
would be .
Average Daily Ads Served or Page
Requests:
There would be a one-time cost of an additional for each
of the AdManager and Profile Server
Software and no additional cost for DSS. Total additional cost
would be .
Option:
Notwithstanding the foregoing, within 180 days of the Effective Date,
Customer may elect to pay Engage an additional license fee of
for an unlimited number of Average Daily Ads Served or Page Requests.
*Installation: Within 5 business days after the Effective Date, Engage
shall deliver to Customer a detailed plan regarding the implementation of
the Software acceptable to Customer, Including scheduled activity and
deliverables for each day, milestone schedule, personnel list, and list of
Customer responsibilities prior to installation.
If the installation process takes less than 8 business days, Engage shall
provide Customer with additional consulting days for each day remaining
unused.
Customer acknowledges that the Attachments marked with an "X" above (and
only those Attachments) are incorporated into and form part of this
Agreement, and that the General Terms and Conditions apply to all
Attachments of this Agreement. This Agreement is not valid until accepted
by Engage.
<PAGE>
GENERAL TERMS AND CONDITIONS
I. DEFINITIONS. Defined terms in this Agreement are capitalized and have
the meanings indicated in the Appendix attached hereto.
II. RIGHT TO USE SOFTWARE; DELIVERY; ESCROW. Customer's right to use the
Software is set forth in the applicable Attachment(s). On the Effective
Date, Engage will deliver or make available for downloading at an FTP site
the Software. Within five (5) business days of the Effective Date, Engage
will name Customer a beneficiary of Engage's source code escrow agreement
with Data Securities International, Inc., dated November 12, 1997. Upon the
occurrence of a "Release Condition" (as defined in the escrow agreement),
Customer shall be entitled to have access to and use the source code form
of the Software for the sole purpose of supporting its use of the Software
as permitted herein until such time as the Release Condition is corrected.
Customer shall bear the expense of being named a beneficiary of said
agreement. All source code made available to Customer shall be Confidential
Information used only by employees of Customer.
III. RESTRICTIONS ON USE OF SOFTWARE. Customer's use of the Software is
subject to the following restrictions. Except as expressly permitted in
this Agreement, Customer shall not, and shall not permit others to, (a)
use, modify, copy (except for one back-up copy containing Engage's
copyright notices and other proprietary marks), or otherwise reproduce the
Software in whole or in part; (b) reverse engineer, decompile, disassemble,
or otherwise attempt to derive the source code form or structure of the
Software; (c) distribute, sublicense, assign, share, timeshare, sell, rent,
lease, grant a security interest in, use for Service Bureau purposes, or
otherwise transfer the Software or Customer's right to use the Software; or
(d) remove any proprietary notices or labels on the Software. All rights
not expressly granted to Customer are reserved by Engage. There are no
implied rights. Customer shall install the Software only on Enterprise
Servers and/or Engines, as the case may be, located in the country
specified on the Cover Page. Customer shall be responsible for ensuring
that its Average Daily Ads served or Page Requests does not exceed the
number permitted for the Applicable Tier (an "Overage"), and Customer shall
promptly report any Overage to Engage, which shall have the right to
require Customer to upgrade its Tier.
IV. TERM OF AGREEMENT; TERMINATION.
A. This Agreement shall commence upon the Effective Date and, unless
terminated in accordance with subsection (b) or (c) below, shall remain in
effect for the term specified on the Cover Page (either perpetual,
subscription, or pilot, each as defined below).
1. Pilot Term. If pilot term is selected on the Cover Page, the
term of this License shall be from the Effective Date until thirty (30)
days thereafter.
2. Subscription Term. If subscription term is selected on the
Cover Page, this License shall have an initial term of 12 (twelve) months
and shall renew automatically for subsequent periods of 12 (twelve) months
unless otherwise terminated in accordance with Section 4(b) or (c) below or
Engage receives a written notice of non-renewal from Customer at least
thirty (30) days prior to the expiration of the initial term or the current
renewal term.
3. Perpetual Term. If perpetual term is selected on the Cover
Page, the term of this License shall be perpetual with respect to the
Software licensed hereunder (unless this Agreement is otherwise terminated
in accordance with Section 4(b) or (c) below).
B. Either party may terminate this Agreement in the event of a
material breach of this Agreement by the other party that is not cured
within thirty (30) days of written notice thereof from the other party.
Without limitation, the following events shall constitute a material
breach: violation by Customer of the terms of the license granted (as set
forth in Sections 2 and 3), failure by Customer to pay any amount when due,
and violation by either party of the confidentiality duties set forth in
Section 13 hereof.
C. This Agreement shall automatically terminate if either party ceases
doing business, is the subject of a voluntary bankruptcy, insolvency or
similar proceeding, is the subject of an involuntary state or federal
bankruptcy, insolvency, or similar proceeding that is not dismissed within
sixty (60) days of filing, makes an assignment for the benefit of
creditors, becomes unable to pay its debts when due, or enters into an
agreement with its creditors providing for the extension or composition of
debt.
V. EFFECT OF TERMINATION OR EXPIRATION.
A. Each party shall immediately surrender all rights, licenses, and
privileges granted under this Agreement.
B. Each party shall promptly pay to the other any amounts due and
owing. No termination of this Agreement shall release Customer from any
obligation to pay Engage any amount that has accrued or will accrue or
become payable prior to, at or after the date of termination.
C. Each party shall immediately cease using and return all property in
its possession belonging to the other party, including without limitation
all Software, Documentation, and tangible embodiments of Confidential
Information.
D. Customer shall not, in advertising or otherwise, use or display any
of Engage's trademarks or any name, mark, or logo that is the same as or
similar to Engage's trademarks, represent itself to be a licensee of
Engage, or in any way identify itself with Engage.
E. Customer shall not be entitled to a refund, in whole or in part, of
any amounts paid hereunder, other than in accordance with Section 9.
F. Sections 3, 5, 6(f), 7, 9, 10, 11(e), 12, 13 and 14 hereof,
together with Customer's obligation to pay outstanding amounts due Engage,
will survive termination or expiration of this Agreement.
VI. PAYMENTS AND OTHER CHARGES.
A. All fees shall be paid in U.S. dollars and shall be made to Engage
at the address set forth on the Cover Page.
B. Customer agrees to pay all invoices within 30 days after the
invoice date. Engage shall invoice Customer for software and support and
other services forty (40) days after the commencement of the Warranty
Period. Engage shall invoice Customer for all recurring fees listed on the
Cover Page on a monthly basis in advance; provided that (i) fees for the
Global Behavior Profile option with either AdManager or DSServer shall be
invoiced on a quarterly basis in advance, and (ii) fees for the Global
Behavior Profile option with Profile Server shall be invoiced on a monthly
basis in arrears based on a cost-per-thousand ("CPM") Page Request basis.
C. A finance charge in an amount equal to one and one-half percent
(1.5%) per month or, if lower, the maximum rate allowed by law will be
assessed on payments not received by Engage on or prior to the due date.
D. Customer agrees to pay when due (or, if necessary, reimburse Engage
for) all sales, use, property, excise, and other similar taxes resulting
from this Agreement, excluding taxes on the net income of Engage.
E. The amount and structure of all fees and rates may be adjusted for
subsequent renewal periods if Engage notifies Customer at least sixty (60)
days prior to the renewal date .
F. Customer agrees to make and maintain for a period of two (2) years
after the end of the year to which they pertain, sufficient books, records
and accounts regarding Customer's use of the Software, in order to
calculate and confirm Customer's payment obligations hereunder. No more
frequently than once each twelve (12) month period, Engage will have the
right, at its expense, to examine and copy such books, records, and
accounts upon reasonable prior notice during Customer's business hours to
verify reports on the amount of payments made to Engage under this
Agreement. All such books, records, and accounts shall constitute
Confidential Information. In the event such inspection discloses an
underpayment of amounts due Engage from Customer, Customer will promptly
remit the amounts due, and if an audit discloses an underpayment of the
fees payable by Customer for the audited period of more than five percent
(5%), Customer shall pay for the expenses of the audit together with the
amount of such underpayment.
VII. PROPRIETARY RIGHTS. Engage and its licensors shall have sole and
exclusive ownership of all right, title, and interest in and to the
Software and Documentation, including all associated intellectual property
rights. Customer acknowledges that Engage represents the Software,
including associated screen displays and menu features, constitutes the
valuable trade secrets of Engage or its licensors and are copyrighted works
owned by Engage or its licensors and protected by federal and international
copyright laws. Customer shall not permit any personnel to remove any
proprietary or other legends or restrictive notices contained or included
in any materials provided by Engage.
VIII. SOFTWARE MAINTENANCE AND SUPPORT SERVICES; OTHER SERVICES. Customer
may purchase Maintenance and Support Services, and installation, training,
and consulting services together with the license of any Software. If
selected by Customer on the Cover Page, all such services will be provided
by Engage in accordance with the terms set forth in Attachment E (Software
Maintenance and Support Services) or Attachment F (Other Services).
Customer will be entitled to receive Updates only if Customer is a paid-up
Maintenance and Support Services customer at the time an Update is
commercially released. Customer also shall be entitled to receive Upgrades
if Customer is a paid-up Maintenance and Support Services Customer at the
time an Upgrade is commercially released.
I. ENGAGE'S DUTY OF INDEMNIFICATION. Engage, at its expense, shall defend
any action, suit or proceeding brought against Customer which alleges (1)
facts constituting a breach of an Engage representation or warranty in
Sections 11(a) and (c) or (2) that any Software infringes any worldwide
copyright or misappropriates any trade secret and Engage shall pay damages
finally awarded against Customer (including court costs and attorneys'
reasonable fees), provided that (a) Customer notifies Engage promptly in
writing of the claim, (b) Engage has sole control of the defense and all
related settlement negotiations, and (c) Customer provides Engage with all
commercially reasonable assistance, information and authority to perform
the above at Engage's expense. In the event that Customer's use of the
Software is enjoined by a court of competent authority, Engage shall, at
its sole option and at its expense, either: (i) procure for Customer the
right to use the Software or (ii) modify the Software to avoid infringement
without material impairment of its functionality or (iii) if neither of the
foregoing remedies can be obtained upon commercially reasonable terms,
require Customer to remove and return to Engage the Software involved and,
if Perpetual Term is selected on the Cover Page, refund Customer a portion
of the price thereof as depreciated over a three (3) year life of the
Software commencing on the date of delivery. The foregoing indemnity shall
not apply if the alleged infringement is attributable to the combination of
the Software and products not provided by Engage, or if the Software is
modified or altered by any person or entity other than Engage, or if the
Software is used outside the scope of this Agreement. THIS SECTION STATES
ENGAGE'S SOLE LIABILITY HEREUNDER WITH RESPECT TO INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
II. CUSTOMER'S DUTY OF INDEMNIFICATION. Customer agrees to defend and/or
settle, indemnify and hold harmless Engage from and against any claim
brought by a third party against Engage and any liability, damage or
expense (including court costs and attorneys' reasonable fees) arising from
or in any manner connected with Customer's breach of a provision of this
Agreement; and Customer shall pay all costs, expenses, damages or
settlement amounts to the extent based on such a third party claim,
provided that (a) Engage notifies Customer promptly in writing of the
claim, (b) Customer has sole control of the defense and all related
settlement negotiations, and (c) Engage provides Customer with all
commercially reasonable assistance, information and authority to perform
the above at Customer's expense.
III. LIMITED WARRANTY.
A. Engage represents and warrants to Customer that Engage has full
power and authority to enter into this Agreement and to grant the license
provided for herein, and that this Agreement has been duly authorized,
executed and delivered by Engage and constitutes a valid, binding and
legally enforceable agreement of Engage. Engage represents and warrants
that, to its knowledge, the Software does not infringe upon any third party
right.
B. Customer represents and warrants to Engage that Customer has full
power and authority to enter into this Agreement and that this Agreement
has been duly authorized, executed and delivered by Customer and
constitutes a valid, binding and legally enforceable agreement of Customer.
C. Engage represents and warrants that it shall use best efforts to
ensure that the Software, if operated on the Specified Configuration, will
manage and manipulate data involving dates in material conformity with the
Documentation before, during and after the year 2000. Engage disclaims
responsibility for the date-related and other performance of hardware,
software, telecommunications facilities and other materials not owned and
originally supplied by Engage.
D. If Customer has elected a perpetual license term on the Cover Page,
Engage warrants that for a period of seventy (70) days following delivery
of the Software to Customer ("Warranty Period"), Engage will use
commercially reasonable efforts to resolve programming errors in the
Software or Documentation to make the Software function in material
conformity with the Documentation, provided that the Software is operated
on the Specified Configuration and in accordance with the Documentation and
provided further that Engage receives a written claim from Customer under
this limited warranty within the Warranty Period. This Warranty does not
apply if Customer or any third party changes or modifies the Software
without the authorization of Engage. Engage does not warrant that the
Software will be error free or that all errors can be remedied. Engage
warrants that the services provided by Engage in connection with this
Agreement will be rendered by qualified personnel and consistent with
commercial practices standard in the industry. The foregoing shall be
Engage's entire liability and Customer's sole and exclusive remedy under
this warranty.
E. THE EXPRESS WARRANTIES GRANTED UNDER THIS AGREEMENT ARE THE ONLY
WARRANTIES MADE BY ENGAGE WITH RESPECT TO THE SOFTWARE AND SERVICES,
EXPRESS OR IMPLIED, AND THEY ARE MADE IN LIEU OF ALL OTHER WARRANTIES OR
REMEDIES. ENGAGE HEREBY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND
WARRANTIES ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF
DEALING OR USE OF TRADE, AS TO ANY MATTER, INCLUDING BUT NOT LIMITED TO,
FEATURES OR CAPABILITIES OF THE SOFTWARE, ENGAGE'S COMPUTERS AND SERVERS,
INFORMATION, REPORTS OR OTHER MATTERS PRODUCED OR PROVIDED IN CONNECTION
WITH THIS AGREEMENT. IN ADDITION TO AND WITHOUT LIMITATION OF THE
FOREGOING, ENGAGE SPECIFICALLY DOES NOT WARRANT, GUARANTEE, OR MAKE ANY
REPRESENTATIONS OTHER THAN AS SET FORTH IN SECTION 11(d) REGARDING THE USE,
OR THE RESULTS OF THE USE, OF ANY SOFTWARE OR FEATURE OR CAPABILITY OF THE
SOFTWARE, IN TERMS OF CORRECTNESS, ACCURACY, RELIABILITY, CURRENTNESS,
SECURITY, OR OTHERWISE. ENGAGE EXPRESSLY DISCLAIMS ANY WARRANTY WITH
RESPECT TO THE QUALITY OR CONTINUITY OF THIRD-PARTY TELECOMMUNICATION OR
INFORMATION SYSTEMS OR SERVICES, SERVER CONNECTION SPEEDS, OR THE
FUNCTIONALITY, OPERABILITY, OR RELIABILITY OF ENGAGE'S OR ANY THIRD PARTY'S
DATA SECURITY FEATURES OR SYSTEMS. THIS DISCLAIMER OF WARRANTY CONSTITUTES
AN ESSENTIAL PART OF THIS AGREEMENT.
IV. LIMITATION OF LIABILITY. CUSTOMER'S SOLE REMEDY AND ENGAGE'S SOLE
OBLIGATION WITH RESPECT TO ANY CLAIMS, WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE AND PRODUCT LIABILITY) OR OTHERWISE, ARISING OUT OF, CONNECTED
WITH, OR RESULTING FROM THIS AGREEMENT SHALL BE GOVERNED BY THIS AGREEMENT,
AND IN ALL CASES CUSTOMER'S REMEDY SHALL BE LIMITED TO MONEY DAMAGES NOT
EXCEEDING THE SOFTWARE LICENSE FEES PAID TO ENGAGE BY CUSTOMER DURING THE
12-MONTH PERIOD IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO SUCH
DAMAGES. WITHOUT LIMITING THE FOREGOING, IT IS EXPRESSLY AGREED THAT IN NO
EVENT SHALL ENGAGE OR ITS SUPPLIERS OR ANYONE ELSE WHO HAS BEEN INVOLVED IN
THE PERFORMANCE OF THIS AGREEMENT ON BEHALF OF ENGAGE, INCLUDING ITS
EMPLOYEES, AGENTS, PARTNERS, REPRESENTATIVES, OR SUBCONTRACTORS, BE LIABLE
FOR ANY (A) DAMAGES CAUSED BY CUSTOMER'S FAILURE TO PERFORM ITS OBLIGATIONS
UNDER THIS AGREEMENT (B) CLAIMS AGAINST CUSTOMER BY ANY THIRD PARTY EXCEPT
AS PROVIDED IN SECTION 9, OR (C) DAMAGES, INCLUDING PRODUCT LIABILITY
DAMAGES, CAUSED BY ANY NON-ENGAGE PRODUCT. NEITHER PARTY SHALL BE LIABLE
FOR INDIRECT, INCIDENTAL, SPECIAL, RELIANCE, INCIDENTAL, EXEMPLARY, COVER
OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS OR
REVENUE, LOST BUSINESS OPPORTUNITIES, LOST SAVINGS, LOST DATA, LOSSES
CAUSED BY DELAY OR THE DOWNTIME OF ENGAGE COMPUTERS OR SERVERS, OR LOSSES
FROM INTERRUPTION, TERMINATION, OR FAILED OPERATION OF THE INTERNET OR
THIRD-PARTY TELECOMMUNICATION SERVICES, EVEN IF A PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING LIMITATIONS SHALL NOT APPLY
TO (I) EITHER PARTY'S DUTY OF INDEMNIFICATION, (II) EITHER PARTY'S UNCURED
MATERIAL BREACH OF ITS DUTY OF CONFIDENTIALITY HEREUNDER, OR (III) ENGAGE'S
UNCURED MATERIAL BREACH OF ATTACHMENT D, SECTION D-7. CUSTOMER RECOGNIZES
THAT THE FEES HEREUNDER ARE BASED IN PART ON THE LIMITED WARRANTY AND
LIMITATION OF LIABILITY AND REMEDIES SET FORTH HEREIN.
V. CONFIDENTIALITY. Each party acknowledges that by reason of its
relationship to the other party under this Agreement it may have access to
Confidential Information. Each party agrees to maintain in confidence and
use only as expressly permitted in this Agreement all Confidential
Information received from the other, both orally and in writing, provided
that the parties' obligations of non-disclosure under this Agreement shall
not apply to Confidential Information which the receiving party can
demonstrate: (i) is or becomes a matter of public knowledge through no
fault of the receiving party; (ii) was rightfully in the receiving party's
possession prior to disclosure by the disclosing party; (iii) subsequent to
disclosure, is rightfully obtained by the receiving party from a third
party in lawful possession of such Confidential Information; (iv) is
independently developed by the receiving party without reference to
Confidential Information; or (v) is required to be disclosed by law. Each
party may seek equitable relief (as well as money damages) to protect its
interests under this Section.
VI. MISCELLANEOUS.
A. ASSIGNMENT. Customer may not sublicense, assign (by operation of
law or otherwise) or otherwise transfer this Agreement or any license or
any right, duty or obligation under this Agreement without Engage's prior
written consent, and any attempt to do so shall be null and void. Engage
shall not unreasonably withhold its consent to the assignment of this
Agreement by Customer to an affiliate, to its successor in connection with
a merger, acquisition or consolidation, or to the purchaser in connection
with the sale of all or substantially all of Customer's assets. Subject to
the foregoing limitations, this Agreement will mutually benefit and be
binding upon the parties, their successors and assigns.
B. EXPORT CONTROL. Customer acknowledges that the export of any
Software is or may be subject to export or import control and Customer
agrees that any Software or the direct or indirect product thereof will not
be exported (or reexported from a country of installation) directly or
indirectly, unless Customer obtains all necessary licenses from the U.S.
Department of Commerce or other agency as required by law.
C. U.S. GOVERNMENT RESTRICTED RIGHTS. Use, duplication, or disclosure
of the Software by the U.S. government is subject to the restrictions set
forth in subparagraph (C)(1)(ii) of the Rights in Technical Data and
Computer Software clause at DFARS 252.227-7013, and subparagraphs (C)(1)
and (2) of the Commercial Computer Software-Restricted Rights at 48 CFR
52.227-19, as applicable.
D. LICENSE SUBJECT TO LICENSOR'S RIGHTS. Customer acknowledges that
portions of the Software may have been licensed to Engage by one or more
third parties. All rights and obligations provided by Engage to Customer
under this Agreement shall be limited to the extent that such underlying
rights and obligations have been provided to Engage. This Section 14(d)
does not limit Engage's representations and warranties in Section 11.
E. INDEPENDENT CONTRACTORS. Nothing in this Agreement shall be
construed to imply a joint venture, partnership or agency relationship
between the parties; Engage shall be considered an independent contractor
when performing any services in connection with this Agreement.
F. NOTICES. Any notice required to be provided pursuant to this
Agreement shall be in writing and shall be deemed given (a) if by hand
delivery, upon receipt thereof or (b) if mailed, three (3) days after
deposit in the U.S. mails, postage prepaid, registered or certified mail,
return receipt requested. A facsimile shall be deemed to be received upon
completion of transmission, as verified by a printout showing satisfactory
transmission, except that should a facsimile be sent on a nonbusiness day,
receipt shall be deemed to occur on the next business day. All notices
shall be addressed to the parties at the respective addresses indicated
herein. If Customer is located in a country other than the U.S., all
notices shall be sent by facsimile. Each party shall promptly notify the
other party of any address change.
G. WAIVER. A failure or delay by either party to enforce any right
under this Agreement shall not at any time constitute a waiver of such
right or any other right, and shall not modify the rights or obligations of
either party under this Agreement. Any waiver by either party of any right
under this Agreement shall not constitute a waiver of such right in the
future. All rights and remedies evidenced hereby are in addition to and
cumulative to rights and remedies available at law or equity or otherwise
available under any other contract.
H. SEVERABILITY. If any provision or portion of this Agreement is held
to be unenforceable or invalid, the remaining provisions and portions shall
nevertheless be given full force and effect, and the parties agree to
negotiate, in good faith, a substitute valid provision which most nearly
effects the parties' intent in entering this Agreement.
I. FORCE MAJEURE. Neither party will be deemed in default of any
obligation hereunder nor be liable for any failure or delay in performance
which results directly or indirectly from any cause beyond its reasonable
control, including without limitation, "Acts of God," delays or failures in
the Internet or related carriers and third-party equipment, acts of civil
or military authority, strikes, fire, theft, delays by suppliers, or action
or inaction by the other party or any third party.
J. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Massachusetts, without regard to
principles of conflicts of laws. Application of the U.N. Convention of
Contracts for the International Sale of Goods is expressly excluded.
K. ENTIRE AGREEMENT. This Agreement, including the Appendix and all
Attachments, is the entire agreement of the parties, and supersedes all
prior agreements and communications, whether oral or in writing, between
the parties with respect to the subject matter of this Agreement. Except as
expressly provided herein, no amendment or modification of this Agreement
shall be effective unless made in writing and signed by Engage and
Customer. If there is any conflict between the provisions of the General
Terms and Conditions and any Attachment, the provisions of the Attachment
shall control.
L. COMPLIANCE WITH LAW. Customer is solely responsible for ensuring
that its use of the Software and Profiles is in compliance with all
foreign, federal, state, and local laws and regulations, and Customer
represents and warrants to Engage that it will comply with this subsection.
M. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
ENGAGE TECHNOLOGIES, INC. CUSTOMER:
By: By:
----------------------------- -------------------------------
Signature Signature
Printed Name Printed Name
Title Title
<PAGE>
APPENDIX
--------
DEFINITIONS
-----------
"AD INSERTION" means the software-automated process performed by AdManager
which results in the insertion of an advertising image into a page at a
Customer Site.
"ADMANAGER" means the release (in object code form) of Engage's AdManager
software that is current as of the Effective Date, any Updates and Upgrades
thereto, and related Documentation.
"AGREEMENT" means this License Agreement, together with the Appendix and
all Attachments designated on the Cover Page.
"APPLICABLE TIER" means the Tier selected by Customer on the Cover Page.
"AVERAGE DAILY ADS SERVED" means the total number of Ad Insertions in a
given month divided by the number of calendar days in such month.
"AVERAGE DAILY PAGE REQUESTS" means the total number of Page Requests
initiated by users visiting Customer Sites in a given month divided by the
number of calendar days in such month.
"BUSINESS OBJECTS" means the release (in object code form) of the Business
Objects Reporter and Explorer software licensed by Engage that is current
as of the Effective Date, any Updates and Upgrades thereto, and related
Documentation.
"CONFIDENTIAL INFORMATION" means the Documentation, information about the
Software, the terms of this Agreement, and any other non-public information
or materials that, if disclosed in written form, is labeled "confidential"
or, if disclosed orally, is identified as confidential prior to disclosure
and submitted to the other party within thirty (30) days in a writing
labeled "confidential."
"COVER PAGE" means the first two pages of this Agreement.
"CUSTOMER SITE" means the collection of pages operated by or under the
control of Customer within the Domain Name(s).
"DATA" means the past, present and future compilation of "clickstream" data
generated by user activity on the web, as well as such data itself, within
the Data Repository.
"DATA REPOSITORY" means the proprietary global repository of Data compiled
and maintained by Engage.
"DOCUMENTATION" means end user materials, in any form or medium, provided
by Engage for use with the Software.
"DOMAIN NAME" means the alphanumeric phrase used by Customer to designate a
particular site on the Internet or an intranet and identified on the Cover
Page.
"DOWNTIME" means the interruption or failed initiation of services caused
by the operational failure of a computer, or of a system transmitting or
receiving information from a computer.
"DSSERVER" means the release (in object code form) of Engage's
DecisionSupportServer software that is current as of the Effective Date,
any Updates and Upgrades thereto, and related Documentation.
"EFFECTIVE DATE" means the effective date indicated on the Cover Page.
"ENGINE" means the single processing system consisting of either a single
or multiple processor unit and its associated RAM memory and disk storage
units, regardless of platform or operating environment, on which Customer
will load, execute, and use AdManager.
"ENTERPRISE SERVER" means a computer server used by Customer to collect or
combine information from one or more Local Servers.
"GLOBAL BEHAVIOR PROFILE" means a unique record, resident in the Data
Repository, that characterizes the behavior of a web browser on the
worldwide web.
"LOCAL BEHAVIOR PROFILE" means a unique record characterizing the behavior
of a Customer Site visitor, as created by ProfileServer.
"LOCAL DECLARED PROFILE" means a unique record containing information
provided by a Customer Site visitor who has completed a registration form.
"LOCAL SERVER" means a computer server used by Customer to host one or more
Customer Sites.
"MAINTENANCE AND SUPPORT SERVICES" means the services provided to Customer
by Engage in accordance with the terms set forth in Attachment E.
"MARKETING WORKBENCH" means the release (in object code form) of the
Marketing Workbench software licensed by Engage that is current as of the
Effective Date, any Updates and Upgrades thereto, and related
Documentation.
"PAGE REQUEST" means the request for part or all of a web page (including
the request for a new frame) that results from a user action such as the
input of a URL, a click on a link, a "refresh" command, or navigation. The
automatic presentation of images or content without any additional action
by the user does not constitute a Page Request.
"PERMITTED ENGINES" means the number of Engines specified on the Cover
Page.
"PERMITTED ENTERPRISE SERVERS" means the number of Enterprise Servers
specified on the Cover Page.
"PERSONAL INFORMATION" means the name, phone number, mailing address, and
social security number of a person, or any other number assigned by an
organization that can be correlated with a person's personal identity.
"PROFILE" means a set of Data associated with a unique web browser, which
Data provides a demographic and/or interest description of such web
browser.
"PROFILE OPTION" means any of the Local Declared Profile, Local Behavior
Profile, or Global Behavior Profile options, as selected by Customer on the
Cover Page, to be used in conjunction with the Software.
"PROFILESERVER" means the release (in object code form) of Engage's
ProfileServer software that is current as of the Effective Date, any
Updates and Upgrades thereto, and related Documentation.
"SEATS" means the maximum number of concurrent users authorized to access
the Software at a given time, as designated on the Cover Page.
"SERVICE BUREAU" means a person or entity that uses the Software to deliver
a data profile, report or other services to a third party where such person
or entity receives directly or indirectly in return anything of value.
"SOFTWARE" means one or more of the following software products, as
specified on the Cover Page: AdManager, DSServer, Business Objects,
Marketing Workbench, and ProfileServer, as well any Updates and Upgrades
thereto.
"SPECIFIED CONFIGURATION" means the software products specified in
Attachment G. Engage may change the Specified Configuration as required for
operation of an Update. Any such change shall be set forth in the release
notes accompanying an Update.
"TIER" means
"UPDATE" means any update, version, release, revision, patch, bug fix or
modified form of the Software that Engage, in its sole discretion, elects
to make available at no additional charge to licensees of the Software that
have purchased Maintenance and Support Services.
"UPGRADE" means an improved and enhanced version of the Software released
by Engage subsequent to the version licensed by Customer hereunder.
"VISITOR DATA" means any data generated by a web browser's http requests
and posts within a Customer Site that is collected by Customer using the
Software.
"WARRANTY PERIOD" has the meaning set forth in Section 11(d).
<PAGE>
ATTACHMENT A
------------
ADMANAGER
---------
A-1. GRANT OF RIGHTS. Subject to the terms and conditions of this
Agreement, Engage grants Customer a royalty-free, nonexclusive,
nontransferable (except for temporary transfer for the limited duration of
a CPU malfunction), worldwide license to use AdManager with the Profile
Option, if any, on the Permitted Engines solely for the purpose of
operating the Customer Sites, provided that the Average Daily Ads Served
does not exceed the maximum number permitted for the Applicable Tier, and
provided further that Customer may use the Profile Option solely for
purposes of Ad Insertion.
ACCEPTED BY: ACCEPTED BY:
ENGAGE: CUSTOMER:
------------------ -----------------
Initials Initials
<PAGE>
ATTACHMENT B
------------
DECISIONSUPPORTSERVER
---------------------
B-1. GRANT OF RIGHTS. Subject to the terms and conditions of this
Agreement, Engage grants Customer a royalty-free, nonexclusive,
nontransferable (except for temporary transfer for the limited duration of
a CPU malfunction), worldwide license to use (a) DSServer with the Profile
Option, if any, on the Permitted Enterprise Servers, provided that the
Average Daily Page Requests does not exceed the maximum number permitted
for the Applicable Tier, and (b) Marketing Workbench and Business Objects
for one Seat plus the number of Additional Seats specified on the Cover
Page, in each case solely for the purpose of operating the Customer Sites.
ACCEPTED BY: ACCEPTED BY:
ENGAGE: CUSTOMER:
------------------ -----------------
Initials Initials
<PAGE>
ATTACHMENT C
------------
PROFILESERVER
-------------
C-1. GRANT OF RIGHTS. Subject to the terms and conditions of this
Agreement, Engage grants Customer a royalty-free, nonexclusive,
nontransferable (except for temporary transfer for the limited duration of
a CPU malfunction), worldwide license to use ProfileServer with the Profile
Option, if any, on the Permitted Enterprise Servers solely for the purpose
of operating the Customer Sites, provided that the Average Daily Page
Requests does not exceed the maximum number permitted for the Applicable
Tier.
ACCEPTED BY: ACCEPTED BY:
ENGAGE: CUSTOMER:
------------------ -----------------
Initials Initials
<PAGE>
ATTACHMENT D
------------
GLOBAL BEHAVIOR PROFILE OPTION
------------------------------
I. GRANT OF RIGHTS TO ACCESS DATA REPOSITORY. Subject to the terms and
conditions of this Agreement, Engage grants Customer a royalty-free,
nonexclusive, nontransferable, worldwide right to request and be served
Profiles from the Data Repository for use in conjunction with the Software
on the Permitted Enterprise Servers or Permitted Engines (as the case may
be) solely for the purpose of operating the Customer Sites, provided that
the Average Daily Page Requests or Average Daily Ads Served (as the case
may be) does not exceed the maximum number permitted for the Applicable
Tier.
II. RESTRICTIONS. Use of a Profile other than as expressly permitted in
Section D-1 is prohibited, and all rights in the Profiles, Data, and Data
Repository other than those expressly granted to Customer are reserved by
Engage. Customer has no implied rights. Without limiting the generality of
the foregoing, Customer will not (i) retain a Profile or a copy of a
Profile, in whole or in part, (ii) use a Profile, through combination with
other data or otherwise, to attempt to derive Personal Information or
associate Personal Information with a Profile, (iii) combine a Profile with
other information and store the results for later use, or (iv) resell or
transfer a Profile to a third party. Any violation of this Section D-2 will
constitute a material breach of this Agreement. This Section D-2 applies to
Customer's use of Profiles (i.e., composite data drawn from Engage's
repository) and is not intended to limit Customer's use of data that
Customer collects.
III. FEE SCHEDULE FOR PROFILESERVER WITH GLOBAL BEHAVIOR PROFILE OPTION.
------------------------------------------------------------------
* If Customer uses the Global Behavior Profile Option other than in
connection with AdManager, Customer shall pay Engage at the following
rates:
---------------------------------------------
Number of
Monthly Page Requests Monthly Fee
=============================================
Up to 99,000
---------------------------------------------
100,000 - 1,999,999 + CPM
---------------------------------------------
2,000,000 and above + CPM
---------------------------------------------
Note: CPM pricing is based on an accumulated decreasing scale
I. ENGAGE'S DUTIES. Engage shall make good faith, reasonable efforts to
maintain operation of the Data Repository on a 24 hours per day, 365 days
per year basis. From time to time, however, and as may be necessary to
maintain the proper operation of the Data Repository, Engage may take the
Data Repository's web server(s) down for repairs, upgrades or routine
maintenance. Engage will use best efforts to minimize Downtime and to
notify Customer reasonably in advance of scheduled Downtime. Engage shall
have no obligation with respect to Downtime except to restore service as
soon as reasonably possible. In the event of Downtime for a period of 48
consecutive hours, Engage will provide Customer a credit against payment of
future fees, which credit shall be equal to a pro-rated portion of the
then-current monthly fee based on the duration of the Downtime.
II. ACCESS TO DATA REPOSITORY. Customer access to the Data Repository shall
be through the Internet or, at Customer's option and expense, through a
dedicated telecommunications line.
III. CONTRIBUTION OF VISITOR DATA. The Software automatically will deliver
the Visitor Data from each Customer Site from Customer to Engage.
IV. ENGAGE'S USE OF VISITOR DATA. Engage will not (i) collect or store
Personal Information, (ii) sell, report or transfer unprocessed Visitor
Data from Customer to any third party, or (iii) aggregate or present
Visitor Data from Customer in a form or manner that would permit a third
party to (a) identify any individual's Personal Information or identity or
(b) identify the data as originating from Customer.
V. CLASSIFICATION FILE. The Software includes a classification table
permitting Customer to map Visitor Data to predefined demographic and other
categories ("Classification File"). Customer will actively maintain and
manage the Classification File in cooperation with Engage so that the
Classification File is accurate and comprehensive in its mapping of Visitor
Data. In the event that Engage reasonably believes that Customer is failing
to meet the foregoing standard, Engage will notify Customer of such failure
and, unless Customer cures the failure within 30 days from such
notification, Engage may terminate this Agreement or impose a surcharge on
Customer in accordance with Engage's then-current fees.
VI. PROPRIETARY RIGHTS TO VISITOR DATA. Customer shall own its Visitor
Data. Customer hereby grants to Engage and its successors a paid up,
royalty-free, perpetual, irrevocable license to use such Visitor Data in
any manner necessary to operate the Data Repository and successor products
and services thereto; provided that Engage's use of Visitor Data shall at
all times be in compliance with the restrictions set forth herein.
VII. PRIVACY POLICY. Customer will at all times during the term of this
Agreement establish, maintain and post on each Customer Site a written
policy regarding the collection and use by Customer of visitor information,
including disclosure of participation in the Data Repository and a
reference to the web address of the Engage privacy page. Customer shall act
in accordance with its published privacy policy.
D-11. TERM. The initial term of the Global Operation Profile shall be three
(3) months ("Quarter.") commencing on the Effective Date. The Quarter shall
automatically renew for successive Quarters unless either party elects not
to renew by providing the other party with written notice at least thirty
(30) days prior to the expiration of a Quarter.
ACCEPTED BY: ACCEPTED BY:
ENGAGE: CUSTOMER:
------------------ -----------------
Initials Initials
<PAGE>
ATTACHMENT E
------------
SOFTWARE MAINTENANCE AND SUPPORT SERVICES
-----------------------------------------
1 MAINTENANCE AND SUPPORT SERVICES. Engage will provide Customer with
the Software maintenance and support services set forth in the table
below at either the Standard or Premium level as indicated on the
Cover Page for the most current release of the Software and the most
current previous release of the Software ("Maintenance and Support
Services"). The Maintenance and Support Services shall apply only to
the Software licensed by Customer as specified on the Cover Page;
Engage is not responsible for the configuration, maintenance or
correction of third-party software, hardware or communications
facilities. Engage shall not be obligated to provide Maintenance and
Support Services if such services are required as a result of (a)
Customer's neglect or misuse of the Software, (b) modification of the
Software by a person or entity than other than Engage without the
prior written consent of Engage, (c) Customer's failure to implement
and use the Specified Configuration, or (d) any other cause beyond the
reasonable control of Engage. Engage shall not be obligated to respond
to requests for support from any person or entity other than a
representative of Customer who has attended a training session
provided by Engage. Engage shall have no liability to any third party
with respect to the Maintenance and Support Services.
2 UPDATES. Upon commercial release of an Update, Engage shall provide
such Update to paid-up Maintenance and Support Services Customers.
3 ERROR CORRECTION. Customer may call to report an "Error" in the
Software (i.e., a failure of the Software to function in material
conformity with the Documentation) during the hours specified in the
table below and shall provide Engage all information necessary for
diagnosis of the Error. Engage shall verify receipt of such requests
and assign an appropriate Severity Level classification. Depending on
the classification, Engage will use commercially reasonable efforts to
either: provide a software solution or workaround; provide an
avoidance procedure; address the request in the next
revision/iteration; or discuss with Customer possible custom
professional services to resolve Customer's request. Telephone support
during the hours specified in the table below is unlimited in any
given month.
4 TELEPHONE SUPPORT. If a support call is made outside the specified
hours and is not of Severity Level 1, Customer shall pay $125 for each
such call for the first hour (or any part of such hour). Each
additional hour will be billed at a rate of $125 per hour. Customer
shall cooperate with Engage to allow the Software to automatically
communicate its status to Engage via Email.
5 TERM. The initial term of Maintenance and Support Services shall be
one year (the "Term") commencing on the expiration of the Warranty
Period if Customer has elected a perpetual term on the Cover Page, and
commencing on the Effective Date if Customer has elected a
subscription term on the Cover Page. Maintenance and Support Services
shall automatically renew for successive Terms unless either party
elects not to renew by providing the other party with written notice
at least thirty (30) days prior to the expiration of a Term.
Termination or expiration of the Maintenance and Support Services
shall not affect any other term of this Agreement. In the event that
Customer elects to reinstate Maintenance and Support Services
following termination of such services by Customer, Customer shall
first pay Engage all fees that would have been paid had Customer not
cancelled such services.
6 PAYMENT. Fees for the initial Term of Maintenance and Support Services
shall be billed upon the Effective Date. Fees for renewal Terms shall
be billed forty-five (45) days prior to the expiration of the
then-current Term.
7 ENGAGE PERSONNEL. In the performance of the Maintenance and Support
Services, Engage reserves the right to determine the assignment of
Engage personnel, to replace or reassign such personnel and to
subcontract with qualified third persons for part or all of the
services. No person performing services on behalf of Engage hereunder
shall be restricted or prevented from performing services for others
that are similar to the services provided under this Agreement.
8 ON-SITE VISITS. For purposes of performing the Maintenance and Support
Services, Customer may permit authorized Engage service engineers to
inspect periodically during normal business hours Customer's computer
systems operating the Software. If Engage is unable by remote
telephone support to address an Error, then Engage, at its sole
discretion, may dispatch a software engineer to Customer's site to
address the Error. The travel and other reasonably-incurred expenses
of such on-site assistance (excluding the personnel cost) shall be
borne by Customer. Dispatch shall be within twenty four (24) hours
after Engage has determined at its sole discretion that telephone
assistance is not sufficient. If Customer requests an on-site software
support visit and Engage reasonably determines that the reported
problem is not the responsibility of Engage, Customer shall reimburse
Engage for the cost of such personnel (at Engage's then-current
consulting rate) as well as the costs reasonably incurred by the
Engage personnel in making such visit. In the event of a Severity 1
problem, Engage shall dispatch, at minimum the Account Manager to
coordinate from the site any Engage related response efforts within 24
hours.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DELIVERABLE STANDARD LEVEL SUPPORT PREMIUM LEVEL SUPPORT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Support Provided Toll Free Phone Support during Support Toll Free Phone Support during
Hours Support Hours
- ----------------------------------------------------------------------------------------------------
Support Hours Monday - Friday 6 A.M. to 8 P.M. Monday - Friday 6 A.M. to 8 P.M.
Eastern time Eastern time
Severity Levels 1-4 Severity Levels 1-4
24 x 7 Beeper support (only Severity
1 and 2)
- ----------------------------------------------------------------------------------------------------
Staff Access to technical support staff Named Account Manager
- ----------------------------------------------------------------------------------------------------
Diagnostics Remote diagnostics available Remote diagnostics available
- ----------------------------------------------------------------------------------------------------
Customer Feedback Quarterly Product Enhancement Ballot Quarterly Product Enhancement Ballot
- ----------------------------------------------------------------------------------------------------
Customer Quarterly Newsletter Quarterly Newsletter
Communication
- ----------------------------------------------------------------------------------------------------
Web site Access to technical support web site 24 Access to technical support web site
x 7 for: 24 x 7 for:
o Problem reporting and tracking o Problem reporting and tracking
via the web via the web
o Web accessible knowledge base o Web accessible knowledge base
o Patches and fixes available for o Patches and fixes available
download for download
o Web based books such as Release o Web based books such as Release
Notes, Installation Guides, etc. Notes, Installation Guides, etc.
- ----------------------------------------------------------------------------------------------------
Proactive Support: 1 Proactive Patch Reporting 1 Proactive Patch Reporting
2 Notification of known problems 2 Notification of known
and fixes problems and fixes
3 Monthly "Wellness Check" and 3 Monthly "Wellness Check" and
call review call review
4 O/S upgrade impact planning 4 O/S upgrade impact planning
5 Site scans on primary URL 5 Site scans on up to 15 URL
address addresses
6 Quarterly review of operations
o One site visit by a support
rep at least once per year.
- ----------------------------------------------------------------------------------------------------
</TABLE>
Severity Levels Defined:
Severity 1 - Critical Business Impact The Service or Software,
regardless of the environment
or product usage, has complete
loss of service or resources
for which no workaround exists
and Customer's work cannot
reasonably continue.
Severity 2 - Serious Business Impact The Service or Software,
regardless of the environment
or product usage is causing
significant or degraded loss
of Customer's service or
resources. A major product
flaw with a workaround, or a
minor product flaw without a
workaround.
Severity 3 - Minor Business Impact. The Service or Software,
regardless of the environment
or product usage, has minor
loss of Customer's service or
resources. A minor product
flaw with a workaround.
Severity 4 - No Business Impact. The Service or Software is in
full working mode; Customer's
work is not being impeded at
this time. Information is
requested or reported. A minor
irritant.
For Severity Level 1 and 2 Errors, Engage shall use best efforts to respond
to the Error report and resolve issues within 1 hour. For Severity Level 3
and 4 Errors, Engage shall use best efforts to respond to the Error report
and resolve issues within 2 hours.
ACCEPTED BY: ACCEPTED BY:
ENGAGE: CUSTOMER:
------------------ -----------------
Initials Initials
<PAGE>
ATTACHMENT F
------------
OTHER SERVICES
--------------
F-1. INSTALLATION.
Engage will provide the number of days indicated below of on-site service
with the purchase of either a Perpetual or Subscription license for the
Software as specified by Customer on the Cover Page. Customer shall
reimburse Engage travel costs and expenses in accordance with Engage's
expense policy.
----------------------------------------------------------------------
ADMANAGER DOMESTIC INTERNATIONAL ON-SITE
DSSERVER ON-SITE DAYS OF SERVICE PROVIDED
PROFILESERVER DAYS OF SERVICE
PROVIDED
----------------------------------------------------------------------
Lite 2 4
----------------------------------------------------------------------
Standard 2 4
----------------------------------------------------------------------
Gold 4 6
----------------------------------------------------------------------
Platinum 4 6
----------------------------------------------------------------------
F-2. TRAINING.
a. Public Class. From time to time, Engage in its discretion may offer a
two-day training class for one or more Software products. Engage shall
notify Customer of the times and locations of such classes. The cost of
attendance is $1,100 per person, and Customer is responsible for all travel
and living expenses. The size of each class is limited; accordingly,
admission is on a first-come first served basis.
b. On Site. If customer has elected on-site training on the Cover Page,
Engage shall provide a two-day training for the Software product specified
by Customer at a location specified by Customer. The cost of such
attendance is as follows:
----------------------------------------------------------------------
NUMBER OF COST
ATTENDEES
----------------------------------------------------------------------
1-3 $3,000
----------------------------------------------------------------------
4-7 $4,500
----------------------------------------------------------------------
7-12 $6,000
----------------------------------------------------------------------
In addition, Customer shall reimburse Engage training personnel for travel
and living expenses in accordance with Engage's expense policy.
F-3. CONSULTING SERVICES.
-------------------
a. Statement of Services.
---------------------
1. Scope of Work. Subject to the following terms and conditions,
Engage shall provide Customer with consulting services ("Consulting
Services"), if elected by Customer on the Cover Page, in accordance with
the written work order(s) agreed to by the parties (each a "Work Order").
Attached hereto as Schedule A is the first such Work Order. Each additional
Work Order shall set forth the respective obligations of the parties and
parameters of the project in a fashion substantially similar to Schedule A.
Upon execution by an authorized representative of each of Engage and
Customer, a Work Order shall be deemed fully incorporated herein by
reference. In the event of any conflict between this Section F-3 and any
Work Order, this Section F-3 shall control; in the event of any conflict
between two or more Work Orders, the most recently executed Work Order
shall control.
2. Estimated Completion Dates. Each Work Order may specify an
estimated completion date for completion of the Consulting Services. At
Customer's request, Engage shall use reasonable efforts to estimate such a
due date based on Engage's thencurrent understanding of the requirements
involved in performing the Consulting Services. Any such estimated
completion date is made for project planning purposes only and is not a
guarantee; Engage may revise an estimated completion date at any time
should events beyond Engage's control or the assumptions upon which Engage
relied in calculating its initial estimate change the scope or magnitude of
the Consulting Services.
b. Duties of Engage. The Consulting Services shall be performed in a
workmanlike and professional manner by personnel assigned by Engage having
a level of skill in the area commensurate with the requirements of the
Consulting Services to be performed. Engage alone shall control the manner,
means and method by which Engage performs the Consulting Services. Engage
shall have sole responsibility for payment of compensation to its
personnel. Engage shall have the right to engage contractors, temporary
employees, consultants, vendors, and suppliers at its discretion to assist
in delivering or performing the Consulting Services. In such event, any
such individuals or entities shall be subject to confidentiality provisions
consistent with those set forth in the Agreement, and Engage shall remain
primarily liable to Customer for the performance of Engage's obligations
hereunder.
c. Duties of Customer. Customer shall fully cooperate with and assist
Engage in the performance of the Consulting Services and shall undertake
the responsibilities specified in this Section F-3 and any additional
responsibilities specified in a Work Order at its own expense. Customer
shall appoint a qualified project manager who shall be authorized to make
binding decisions for Customer regarding this Agreement, and who shall
review all specifications, technical materials and other documents
submitted by Engage, request necessary corrections, and approve such
documents; provide to Engage requested Customer information and data and
assume responsibility for the accuracy of the same; advise Engage of
Customer's requirements; and upon request, provide access to Customer's
staff, facilities and hardware and software as necessary for Engage to
perform the Consulting Services.
d. Dependencies on Customer. Engage shall have no liability to Customer for
Customer's damages, expenses or costs from delays or failures in Engage's
performance of the Consulting Services under this Agreement resulting from
Customer "change orders" (i.e., work not specified in the Work Order),
failure of Customer to perform its responsibilities, or failure of Customer
to provide accurate and complete data and instructions in accordance with
the procedures set forth in a Work Order. Any such Customer changes or
delays in performance by Customer may result in a corresponding extension
in the time periods for performance by Engage and/or adjustment to the fees
specified in the Work Order. Engage's sole liability to Customer or to any
third party for claims, regardless of the form of such claims (e.g.,
contract, negligence, or other), arising out of any delay in the
performance of the Consulting Services for any reason shall be to use
commercially reasonable efforts to provide the Consulting Services as
promptly as reasonably practicable thereafter.
e. Compensation. Unless otherwise specified in a Work Order, the Consulting
Services shall be rendered on a time and materials basis at the rate stated
in each Work Order. In addition, Customer shall reimburse Engage for
outofpocket expenses incurred in connection with the Consulting Services in
accordance with Engage's expense policy. Estimates of total fees for
projects may be provided in a Work Order solely for project planning
purposes. Engage does not guarantee such estimates. Engage shall, however,
notify Customer if it becomes aware that its completion of the Consulting
Services will exceed the estimate, and Customer may then terminate the Work
Order and pay only for the Consulting Services actually rendered.
f. Term and Termination. The Consulting Services shall become effective on
the Effective Date and shall continue in effect through the earlier of (a)
completion of all Consulting Services to be rendered under this Section
F-3, (b) termination of the Agreement, or (c) termination of Consulting
Services by either party as permitted below. Either party may terminate the
Consulting Services generally or the applicable Work Order in the event
that the other party materially breaches a provision of this Section F-3
and fails to cure such breach within thirty (30) days of receiving written
notice of such breach from the other party. Termination of the Consulting
Services shall terminate all Work Orders but shall not affect any other
provision of the Agreement; termination of a Work Order shall not affect
any provision of this Section F-3 or of the Agreement. Customer may
terminate a Work Order at any time by giving Engage no less than sixty (60)
days prior written notice.
g. Proprietary Rights.
------------------
1. Engage Ownership; Customer License. Except as provided in Section
F-3(g)(2) below, the Consulting Services and related documentation,
together with all other data and materials, all software codes, trade
secrets, design concepts, discoveries, ideas, enhancements, improvements
and inventions related thereto ("Proprietary Information") supplied by
Engage to Customer pursuant to this Agreement: (i) are the exclusive
property of Engage and shall remain so; and (ii) are confidential and
proprietary trade secrets of Engage, protected by law, and of substantial
value to Engage, and may not be used or disclosed without the written
consent of Engage. Customer shall retain in strict confidence the
Proprietary Information, shall not disclose the Proprietary Information to
others, and may use the Proprietary Information solely in connection with
this Agreement. The Consulting Services shall only be used by Customer for
the purposes set forth in this Agreement. Engage hereby grants Customer a
license, under the same terms and conditions in the Agreement governing the
Software to which the Consulting Services pertain, to use the elements of
the work product identified expressly on the applicable Work Order
("Licensed Materials"). If the Licensed Materials consist of computer code,
Engage hereby grants Customer a license to use the source code form of the
Licensed Materials solely for purposes of performing error correction,
subject to the other terms and conditions of this Agreement.
2. Customer Ownership. In the event that Proprietary Information, in
whole or in part, is not included in the base form of any Engage product or
service and will not be so included in the future in the sole judgment of
Engage, the applicable Work Order shall indicate that the Proprietary
Information shall be owned by Customer; provided, however, that as between
Engage and Customer, Engage shall own all pre-existing and pre-owned
elements of the Proprietary Information and shall have the right to
commercialize any such materials for any purpose. All Proprietary
Information that is not identified expressly in a Work Order as owned by
Customer shall be owned by Engage.
h. Support. For a period of thirty (30) days following delivery of the work
product under a Work Order, Engage will use commercially reasonable efforts
to address Severity Level 1 and 2 Errors (as defined in Attachment E,
Section E-3). Customer shall be solely responsible for maintenance and
support of the work product in all other respects; Maintenance and Support
Services do not apply to work product delivered to Customer under this
Section F-3.
ACCEPTED BY: ACCEPTED BY:
ENGAGE: CUSTOMER:
------------------ -----------------
Initials Initials
<PAGE>
ATTACHMENT G
------------
SPECIFIED CONFIGURATION
-----------------------
PROFILESERVER / DSSERVER:
----------------------------------------------------------------
Enterprise Server Microsoft SQL Server 6.5 on Windows NT 4.0
Oracle Server 8.0 on Sun Solaris 2.6
Informix Online Dynamic Server 7.2 on Sun
Solaris 2.6
----------------------------------------------------------------
Local Server Microsoft Internet Information Server 4.0
on Windows NT 4.0
Netscape Enterprise Server 3.51 on Solaris
2.6
Netscape Enterprise Server 3.51 on Windows
NT 4.0
----------------------------------------------------------------
ADMANAGER:
----------------------------------------------------------------
Operating Sun Solaris 2.5.1, 2.6
System/Clients MS Windows NT Server 4.0
----------------------------------------------------------------
Web Server Plug-Ins Apache 1.2.5
ISAPI (IIS 2.0, 3.0, 4.0)
NSAPI (Netscape FastTrack 3.0, Netscape
Enterprise 3.01)
----------------------------------------------------------------
Client Libraries MS Windows NT Server 4.0
Solaris 2.5.1, 2.6
BSD
Dec Alpha NT
Dec Alpha Unix
Linux
----------------------------------------------------------------
Databases Informix 7.2.4 on Windows NT 4.0 SP3
Oracle 7.3.3.0.0 for Solaris 2.5 and 2.6
Oracle 7.3.3.0.0 for Windows NT SP3
Sybase 11.0 1.1 on Solaris 2.5.1
MS SQL Server 6.05.02 on NT 4.0 Server SP1
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ACCEPTED BY: ACCEPTED BY:
ENGAGE: CUSTOMER:
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Initials Initials
EXHIBIT 10.16
theglobe.com, inc.
1999 Employee Stock Purchase Plan
ARTICLE I
INTRODUCTION
1.01 Purpose. theglobe.com, inc. 1999 Employee Stock Purchase Plan
(the "Plan") is intended to provide a method whereby employees of
theglobe.com, inc. (the "Company") and its Eligible Subsidiary Corporations
(as defined below) will have an opportunity to acquire a proprietary
interest in the Company through the purchase of shares of the Common Stock
(as defined below).
1.02 Rules of Interpretation. It is the intention of the Company to
have the Plan qualify as an "employee stock purchase plan" under ss. 423 of
the Internal Revenue Code of 1986, as amended (the "Code"). The provisions
of the Plan shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
ARTICLE II
DEFINITIONS
2.01 "Code" shall have the meaning set forth in Section 1.02.
2.02 "Company" shall have the meaning set forth in Section 1.01.
2.03 "Compensation" shall mean the gross cash compensation (including
wage, salary and overtime earnings) paid by the Company or any Eligible
Subsidiary Corporation to a participant in accordance with the terms of
employment, but excluding all bonus payments, expense allowances and
compensation paid in a form other than cash.
2.04 "Committee" shall have the meaning set forth in Section 11.01.
2.05 "Common Stock" shall mean the common stock, par value $.001, of
the Company.
2.06 "Eligible Subsidiary Corporation" shall mean each Subsidiary
Corporation the employees of which are entitled to participate in the Plan,
as listed or referred to on Schedule 2.04 hereto.
2.07 "Employee" shall have the meaning set forth in Section 3.01.
2.08 "Offering Commencement Date" shall have the meaning set forth in
Section 4.02.
2.09 "Offering Price" shall have the meaning set forth in Section
6.02.
2.10 "Offering Termination Date" shall have the meaning set forth in
Section 4.02.
2.11 "Offerings" shall have the meaning set forth in Section 4.02.
2.12 "Plan" shall have the meaning set forth in Section 1.01.
2.13 "Plan Representative" shall mean the person designated from time
to time by the Committee to receive certain notices and take certain other
administrative actions relating to participation in the Plan.
2.10 "Subsidiary Corporation" shall mean any present or future
corporation which (i) is or becomes a "subsidiary corporation" (as that
term is defined in ss. 424 of the Code) of the Company, and (ii) is
designated as a participating employer in the Plan by the Committee.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Initial Eligibility. Each employee who shall have completed six
consecutive months of full-time employment with the Company and/or any
Eligible Subsidiary Corporation shall be eligible to participate in
Offerings which commence after such six-month period has concluded,
provided he or she is employed on a full-time basis by the Company or an
Eligible Subsidiary Corporation as of the relevant Offering Commencement
Date (any such eligible employee, an "Employee"). Persons who are not
Employees shall not be eligible to participate in the Plan.
3.02 Restrictions on Participation. Notwithstanding any provision of
the Plan to the contrary, no Employee shall be granted an option to
purchase shares of Common Stock under the Plan:
(a) if, immediately after the grant, such Employee would own
stock and/or hold outstanding options to purchase stock possessing 5% or
more of the total combined voting power or value of all classes of stock of
the Company (for purposes of this paragraph, the rules of ss. 424(d) and
ss. 423(b)(3) of the Code shall apply in determining stock ownership of any
Employee); or
(b) which permits such Employee's rights to purchase stock under
all employee stock purchase plans of the Company to accrue at a rate which
exceeds $25,000 of fair market value of the Common Stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time.
3.03 Commencement of Participation. An eligible Employee may become a
participant by completing an authorization for payroll deductions on the
form provided by the Company and filing the completed form with the Plan
Representative on or before the filing date set therefor by the Committee,
which date shall be prior to the Offering Commencement Date for the next
following Offering. Payroll deductions for a participant shall commence on
the next following Offering Commencement Date after the Employee's
authorization for payroll deductions becomes effective and shall continue
until termination of the Plan or the participant's earlier termination of
participation in the Plan. Each participant in the Plan shall be deemed to
continue participation until termination of the Plan or such participant's
earlier termination of participation in the Plan pursuant to Article VIII
below.
ARTICLE IV
STOCK SUBJECT TO THE PLAN AND OFFERINGS
4.01 Stock Subject to the Plan. Subject to the provisions of Section
12.04, the Company's Board of Directors shall reserve initially for
issuance under the Plan an aggregate of two hundred thousand (200,000)
shares of Common Stock, which shares shall be authorized but unissued. The
Company's Board of Directors may from time to time reserve additional
shares of authorized and unissued Common Stock for issuance pursuant to the
Plan; provided, however, that at no time shall the number of shares of
Common Stock reserved be greater than permitted by applicable law.
4.02 Offerings. The Plan will be implemented by four offerings of the
Common Stock during each twelve-month period (the "Offerings"). For so long
as the Plan is in effect, an Offering will begin on May 1 and end on July
31, begin on August 1 and end on October 31, begin on November 1 and end on
January 31, and begin on February 1 and end on April 30. The first day of
an Offering shall be deemed the "Offering Commencement Date" and the last
day the "Offering Termination Date" for such Offering.
ARTICLE V
PAYROLL DEDUCTIONS
5.01 Amount of Deduction. The form described in Section 3.03 will
permit a participant to elect payroll deductions of any whole percentage
from one percent (1%) through ten percent (10%) of such participant's
Compensation for each pay period during an Offering.
5.02 Participant's Account. All payroll deductions made for a
participant shall be credited to an account established for such
participant under the Plan. A participant may not make any separate cash
payment into such account.
5.03 Changes in Payroll Deductions. A participant may reduce or
increase future payroll deductions (within the limits described in Section
5.01) by filing with the Plan Representative a form provided by the Company
for such purpose. The effective date of any increase or reduction in future
payroll deductions will be the first day of the next Offering following
processing of the change form. A participant may increase or reduce the
amount of his or her payroll deductions only once with respect to any
Offering.
ARTICLE VI
GRANTING OF OPTION
6.01 Number of Option Shares. On the Offering Commencement Date (for
each Offering), each participating Employee shall be deemed to have been
granted an option to purchase a maximum number of shares of Common Stock
the fair market value of which is equal to (i) that percentage of the
Employee's Compensation which the Employee has elected to have withheld
(but not in any case in excess of 10%) multiplied by (ii) the Employee's
Compensation during the Offering then divided by (iii) the applicable
Offering Price determined as provided in Section 6.02 below.
Notwithstanding the foregoing, the maximum number of shares of Common Stock
that a participant may purchase pursuant to an Offering is 2,000.
6.02 Option Price. The option price of stock purchased with payroll
deductions made during any Offering (the "Offering Price") for a
participant therein shall be the lower of:
(a) 85% of the closing price of the stock on the Offering
Commencement Date for such Offering or the nearest prior business day on
which trading occurred on the NASDAQ National Market System; or
(b) 85% of the closing price on the Offering Termination Date for
such Offering or the nearest prior business day on which trading occurred
on the NASDAQ National Market System. If the Common Stock of the Company is
not admitted to trading on any of the aforesaid dates for which closing
prices of the stock are to be determined, then reference shall be made to
the fair market value of the stock on each such date, as determined on such
basis as shall be established or specified by the Committee.
ARTICLE VII
EXERCISE OF OPTION
7.01 Automatic Exercise. Subject to Section 6.01, each Plan
participant's option for the purchase of stock with payroll deductions made
during any Offering will be deemed to have been exercised automatically on
the applicable Offering Termination Date for the purchase of the number of
full shares of Common Stock which the accumulated payroll deductions in the
participant's account at the time will purchase at the applicable Offering
Price.
7.02 Withdrawal of Account. No participant in the Plan shall be
entitled to withdraw any amount from the accumulated payroll deductions in
his or her account; provided, however, that a participant's accumulated
payroll deductions shall be refunded to the participant as and to the
extent specified in Section 8.01 below upon termination of such
participant's participation in the Plan.
7.03 Fractional Shares. Fractional shares of Common Stock will not be
issued under the Plan. Any accumulated payroll deductions which would have
been used to purchase fractional shares, unless refunded pursuant to
Section 7.02 above, will be held for the purchase of Common Stock in the
next following Offering, without interest.
7.04 Exercise of Options. During a participant's lifetime, options
held by such participant shall be exercisable only by such participant.
7.05 Delivery of Stock. As promptly as practicable after the Offering
Termination Date of each Offering, the Company will deliver to each
participant in such Offering, as appropriate, the shares of Common Stock
purchased therein upon exercise of such participant's option. The Company
may deliver such shares in certificated or book entry form, at the
Company's sole election. The Company may require a participant to dispose
of the shares of Common Stock acquired pursuant to the Plan through one or
more brokers designated by the Company.
7.06 Stock Transfer Restrictions. The Plan is intended to satisfy the
requirements of ss. 423 of the Code. A participant will not obtain the
benefits of this provision if such participant disposes of shares of Common
Stock acquired pursuant to the Plan within two (2) years from the
applicable Offering Commencement Date.
ARTICLE VIII
WITHDRAWAL
8.01 In General. A participant may stop participating in the Plan at
any time by giving written notice to the Plan Representative. Upon
processing of any such written notice, no further payroll deductions will
be made from the participant's Compensation during such Offering or
thereafter, unless and until such participant elects to resume
participation. Such participant's payroll deductions accumulated prior to
processing of such notice to stop participation shall be applied toward
purchasing full shares of Common Stock in the then-current Offering as
provided in Section 7.01 above. Any cash balance remaining after the
purchase of shares in such Offering shall be refunded promptly to such
participant. A participant may elect to resume participation in the Plan by
providing written notice to the Plan Representative pursuant to Section
3.03 above. Such election to resume participation shall be effective as of
the first Offering commencing following the processing of such election.
8.02 Effect on Subsequent Participation. A participant's withdrawal
from any Offering will not have any effect upon such participant's
eligibility to participate in any succeeding Offering or in any similar
plan which may hereafter be adopted by the Company and for which such
participant is otherwise eligible.
8.03 Termination of Employment. Upon termination of a participant's
employment with the Company or any Eligible Subsidiary Corporation (as the
case may be) for any reason, including retirement or death, the
participant's payroll deductions accumulated prior to such termination, if
any, shall be applied toward purchasing full shares of Common Stock in the
then-current Offering, and any cash balance remaining after the purchase of
shares in such Offering shall be refunded to him or her, or, in the case of
his or her death, to the person or persons entitled thereto under Section
12.01, and his or her participation in the Plan shall be deemed to be
terminated.
ARTICLE IX
INTEREST
9.01 Payment of Interest. No interest will be paid or allowed on any
money paid into the Plan or credited to the account of or distributed to
any participant.
ARTICLE X
STOCK
10.01 Participant's Interest in Option Stock. No participant will have
any interest in shares of Common Stock covered by any option held by such
participant until such option has been exercised as provided in Section
7.01 above.
10.02 Registration of Stock. Shares of Common Stock purchased by a
participant under the Plan will be recorded in the books and records of the
Company in the name of the participant.
10.03 Restrictions on Exercise. The Board of Directors of the Company
may, in its discretion, require as conditions to the exercise of any option
that the shares of Common Stock reserved for issuance upon the exercise of
such option shall have been duly listed, upon official notice of issuance,
upon a stock exchange or market, and that either:
(a) a registration statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is his
or her intention to purchase the shares for investment and not for resale
or distribution.
ARTICLE XI
ADMINISTRATION
11.01 Appointment of Committee. The Board of Directors of the Company
shall appoint a committee (the "Committee") to administer the Plan, which
shall consist solely of no fewer than two "non-employee directors" (as
defined in Rule 16b-3(a)(3) promulgated under the Securities Exchange Act
of 1934, as amended).
11.02 Authority of Committee. Subject to the express provisions of the
Plan, the Committee shall have plenary authority in its discretion to
interpret and construe any and all provisions of the Plan, to adopt rules
and regulations for administering the Plan, and to make all other
determinations deemed necessary or advisable for administering the Plan.
The Committee's determination of the foregoing matters shall be conclusive.
11.03 Rules Governing the Administration of the Committee. The Board
of Directors of the Company may from time to time appoint members of the
Committee in substitution for or in addition to members previously
appointed and may fill vacancies, however caused, in the Committee. The
Committee may select one of its members as its chairman, shall hold its
meetings at such times and places as it shall deem advisable, and may hold
telephonic meetings. All determinations of the Committee shall be made by a
majority of its members. A decision or determination reduced to writing and
signed by a majority of the members of the Committee shall be as fully
effective as if it had been made by a majority vote at a meeting duly
called and held. The Committee may appoint a secretary and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.
ARTICLE XII
MISCELLANEOUS
12.01 Designation of Beneficiary. A participant may file with the Plan
Representative a written designation of a beneficiary who is to receive any
shares of Common Stock and/or cash under the Plan upon the participant's
death. Such designation of beneficiary may be changed by the participant at
any time by written notice to the Plan Representative. Upon the death of a
participant and receipt by the Company of proof of identity and existence
at the participant's death of a beneficiary validly designated by the
participant under the Plan, and subject to Article VIII above concerning
withdrawal from the Plan, the Company shall deliver such shares of Common
Stock and/or cash to such beneficiary. In the event of the death of a
participant lacking a beneficiary validly designated under the Plan who is
living at the time of such participant's death, the Company shall deliver
such shares of Common Stock and/or cash to the executor or administrator of
the estate of the participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares of Common Stock and/or cash to the
spouse or to any one or more dependents of the participant, in each case
without any further liability of the Company whatsoever under or relating
to the Plan. No beneficiary shall, prior to the death of the participant by
whom he or she has been designated, acquire any interest in the shares of
Common Stock and/or cash credited to the participant under the Plan.
12.02 Transferability. Neither payroll deductions credited to any
participant's account nor any option or rights with regard to the exercise
of an option or the receipt of Common Stock under the Plan may be assigned,
transferred, pledged, or otherwise disposed of in any way by the
participant other than by will or the laws of descent and distribution. Any
such attempted assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may, in its discretion, treat such
act as an election to withdraw from participation in the Plan in accordance
with Section 8.01.
12.03 Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate
purpose. The Company shall not be obligated to segregate such payroll
deductions.
12.04 Adjustment Upon Changes in Capitalization.
(a) If, while any options are outstanding under the Plan, the
outstanding shares of Common Stock of the Company have increased,
decreased, changed into, or been exchanged for a different number or kind
of shares or securities of the Company through any reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split or
similar transaction, appropriate and proportionate adjustments may be made
by the Committee in the number and/or kind of shares which are subject to
purchase under outstanding options and in the Option Price applicable to
such outstanding options. In addition, in any such event, the number and/or
kind of shares which may be offered in the Offerings described in Article
IV hereof shall also be proportionately adjusted.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all of the property or capital
stock of the Company to another corporation, the holder of each option then
outstanding under the Plan will thereafter be entitled to receive at the
next Offering Termination Date, upon the exercise of such option, for each
share as to which such option shall be exercised, as nearly as reasonably
may be determined, the cash, securities and/or property which a holder of
one share of the Common Stock was entitled to receive upon and at the time
of such transaction. The Board of Directors of the Company shall take such
steps in connection with such transactions as it shall deem necessary to
assure that the provisions of this Section 12.04 shall thereafter be
applicable, as nearly as reasonably may be determined, in relation to the
said cash, securities and/or property as to which each such holder of any
such option might hereafter be entitled to receive.
12.05 Amendment and Termination. The Board of Directors of the Company
shall have complete power and authority to terminate or amend the Plan;
provided, however, that the Board of Directors of the Company shall not,
without the approval of the shareholders of the Company, alter (i) the
aggregate number of shares of Common Stock which may be issued under the
Plan (except pursuant to Section 12.04 above), or (ii) the class of
employees eligible to receive options under the Plan, other than to
designate additional Subsidiary Corporations as Eligible Subsidiary
Corporations; and provided further, however, that no termination,
modification, or amendment of the Plan may, without the consent of an
Employee then having an option under the Plan to purchase shares of Common
Stock, adversely affect the rights of such Employee under such option,
except that the foregoing shall not prohibit the Company from terminating
the Plan at any time (including during an Offering) and applying the
amounts theretofore withheld from participants to the purchase of shares of
Common Stock as if the termination date of the Plan were an Offering
Termination Date.
12.06 Effective Date. The Plan shall become effective as of May 1,
1999, subject to approval by the holders of a majority of the shares of
Common Stock present and represented at any special or annual meeting of
the shareholders of the Company duly held within 12 months after adoption
of the Plan. If the Plan is not so approved, the Plan shall not become
effective.
12.07 No Employment Rights. The Plan does not, directly or indirectly,
create in any person any right with respect to continuation of employment
by the Company or any Subsidiary Corporation, and it shall not be deemed to
interfere in any way with the Company's or any Subsidiary Corporation's
right to terminate, or otherwise modify, any Employee's employment at any
time.
12.08 Effect of Plan. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all
successors of each Employee participating in the Plan, including, without
limitation, such Employee's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in
bankruptcy or representative of creditors of such Employee.
12.09 Governing Law. The law of the State of New York will govern all
matters relating to this Plan except to the extent superseded by the
federal laws of the United States.
<PAGE>
Schedule 2.04 to
theglobe.com, inc. 1999 Employee Stock Purchase Plan
Eligible Subsidiary Corporations
--------------------------------
1. Each Subsidiary Corporation organized under the laws of any of the
states of the United States of America.
EXHIBIT 11.1
<TABLE>
<CAPTION>
loss per share
COMPUTATION OF LOSS PER SHARE
YEAR ENDED
DECEMBER 31,
1998 1997 1996
-------------- ------------- ---------------
<S> <C> <C> <C>
Basic:
Net loss ($ 16,045,640) ($ 3,584,400) ($ 750,180)
Net loss applicable to common
stockholders ($ 16,045,640) ($ 3,584,400) ($ 750,180)
============== ============= ===============
Basic weighted average shares
outstanding 2,381,140 1,146,773 1,125,000
============== ============= ===============
Basic loss per common share ($6.74) ($3.13) ($0.67)
============== ============= ===============
Diluted:
Net loss applicable to common
stockholders ($ 16,045,640) ($ 3,584,400) ($ 750,180)
============== ============= ===============
Basic weighted average shares
outstanding 2,381,140 1,146,773 1,125,000
Net effect of dilutive securities 0 0 0
-------------- ------------- ---------------
Diluted weighted average shares
outstanding 2,381,140 1,146,773 1,125,000
============== ============= ===============
Diluted loss per common share ($6.74) ($3.13) ($0.67)
============== ============= ===============
</TABLE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
theglobe.com, inc.
We consent to incorporation by reference in the registration statement (No.
333-67217) on Form S-8 of theglobe.com, inc. of our report dated February
20, 1999, relating to the balance sheets of theglobe.com, inc. as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998, and related schedule, which report appears
in the December 31, 1998, annual report on Form 10-K of theglobe.com, inc.
(signed) KPMG LLP
New York, New York
March 29, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS OF THEGLOBE.COM AS OF DECEMBER 31, 1998 AND 1997,
RESPECTIVELY, AND THE RELATED STATEMENTS OF OPERATIONS, STOCKHOLDERS'
EQUITY (DEFICIENCY) AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 AND
1997, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1997
<PERIOD-START> Jan-01-1998 Jan-01-1997
<PERIOD-END> Dec-31-1998 Dec-31-1997
<CASH> 29,250,572 5,871,291
<SECURITIES> 898,546 13,003,173
<RECEIVABLES> 2,305,011 266,209
<ALLOWANCES> 300,136 12,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 32,832,824 19,128,673
<PP&E> 4,387,521 435,394
<DEPRECIATION> 824,962 109,552
<TOTAL-ASSETS> 38,129,878 19,462,172
<CURRENT-LIABILITIES> 5,823,531 2,011,297
<BONDS> 0 0
0 0
0 1,450
<COMMON> 10,312 1,154
<OTHER-SE> 30,290,311 17,346,840
<TOTAL-LIABILITY-AND-EQUITY> 38,129,878 19,462,172
<SALES> 0 0
<TOTAL-REVENUES> 5,509,818 770,293
<CGS> 0 0
<TOTAL-COSTS> 2,238,871 423,706
<OTHER-EXPENSES> 20,129,680 4,229,607
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 123,724 0
<INCOME-PRETAX> (15,966,722) (3,548,300)
<INCOME-TAX> 78,918 36,100
<INCOME-CONTINUING> (16,045,640) (3,584,400)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,045,640) (3,584,400)
<EPS-PRIMARY> (6.74) (3.13)
<EPS-DILUTED> (6.74) (3.13)
</TABLE>
EXHIBIT 99.1
SCHEDULE II
<TABLE>
<CAPTION>
theglobe.com, inc.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED END
OF PERIOD TO EXPENSE DEDUCTIONS OF PERIOD
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996 $ - $ - $ - $ -
Year ended December 31, 1997 $ - $ 12,000 $ - $ 12,000
Year ended December 31, 1998 $ 12,000 $ 387,878 $ 99,742 $ 300,136
</TABLE>
